Tuesday Morning – WPX



Market Sentiment Watch: Quiet in energyland. In today's post please find the early read on oil inventories, the early read on natural gas inventories, comments and a pro forma cheat sheet for WPX/Felix, and some other odds and ends.

Ecodata Watch:

  • We get housing starts at 8:30 am EST (F = 1.35 mm, last read was 1.314 mm),
  • We get building permits at 8:30 am EST (F = 1.425 mm, last read was 1.461 mm),
  • We get industrial production at 9:15 am EST (F = 1.2%, last read was -0.8%),
  • We get capacity utilization at 9:15 am EST (F = 77.5%, last read was 76.7%),
  • We get job openings at 10 am EST (no forecast, last read was 7.0 mm).

In Today’s Post:

  1. Holdings Watch
  2. Commodity Watch
  3. Stuff We Care About Today – WPX, MR, VWDRY
  4. Odds & Ends


Holdings Watch:

ZLT (Zman Long Term portfolio)

Yesterday’s Trades:

  • WPX - added to our position in WPX at $11.23 average. The name is up 3% on the day after announcing the acquisition of private Delaware Basin player Felix in a mostly stock transaction. Debt metrics will be neutral at $50 oil. Margins improve, free cash improves, they've added a $0.10 annual dividend and will continue to support the opportunistic buyback. Please see our December 5th post for WPX standalone comments and a cheat sheet and pro forma comments in today's post. We will have a pro forma cheat sheet for the deal in tomorrow's post. We hold almost a 5% position here and plan to go 6% as early as today.

The Blotter is updated.

Commodity Watch:

Crude oil edged up $0.14 to close at $60.21 yesterday, moving in a fairly narrow band vs recent trading and on lighter volume. This morning crude is trading up to $60.50.

EIA Drilling Productivity Report (Oil) Watch:

  • Shale seen growing by 30,000 bopd in January,
  • This compares to 49,000 bopd they saw for growth in December.  This monthly growth has been rapidly slowing, though some of that would also be frac holiday related (if their model took that into account).
  • They show first month productivity as little gain (up 12 barrels per day) in January with strong gains shown for the Bakken and Eagle Ford which is a bit odd and likely a function of math needed to get to their overall growth figures.
  • EIA shows DUCs were down 131 or 1.7% in November, declining everywhere but the Bakken and Hayensville which were flattish. Anadarko Basin DUCs were off sharply (almost 8%) in November (lower STACK drilling eating into inventory).

Early Read on Oil Inventories:

  • Crude: Down 1.9 mm barrels (there was no SPR release last week)
  • Gasoline: Up 2.1 mm barrels
  • Distillates: Up 0.2 mm barrels

This Week In History:

Natural gas rose 2% to close at $2.34 yesterday on colder forecasts for the current week and for January (something we've not seen in the Monday maps yet).  The very early read for Thursday remains at -92 Bcf, well below the five year average for this week of -112 Bcf This morning gas is trading down 2%.

  • Pipeline Watch: FERC denies New York request to rehearing regarding Constitution. Positive for COG and Appalachia pricing in general.
  • EIA DPR Watch:  EIA sees January gas from shale plays rising just 77 MM/d or less than 0.1 Bcfgpd.  This compares to monthly gains of nearly 1 Bcfgpd early this year. We are slowing.
  • IEA Watch:  IEA notes coal remains #1 for power generation and produces 1/3 of all CO2 emissions with consumption up 65% since 2000. And yet people complain about natural gas.

Stuff We Care About Today

WPX Pro Forma Cheat Sheet

  • We covered the deal in yesterday's post and you can go there for greater detail.
  • This cheat sheet reflects the new shares to Felix (153 mm) and the new debt to pay Felix $900 mm in cash.
  • This is essentially a debt neutral deal.
  • Felix is oilier than WPX and that is taken into account in the modeling.
  • Felix is expected to close in early 2Q20 and all numbers reflect the partial year.
  • Note that they are set to free cash flow even at $50 and cash flow significantly at $60.
  • We have tried to be conservative in our modeling and have not assumed big cost synergies.
  • We see upside to $16 on our $60 deck and down side to about $10.50 if oil averages close to $50 instead.
  • The call went well and our sense most of the Street was pleased with the purchase which expands the runway and as they note would be an "acreage is free" type deal if oil is set at $65 instead of the $50 they assume long term.
  • We have liked new management here for some time and as they note, this is the first deal they've done in 3 years and given the oily, apparently low operating cost nature of the assets it appears to be a good fit.
  • The green boxes give a good idea of the before and after on valuation at both $50 and $60 standalone vs pro forma levels.
  • The name closed up 9% on the day at $11.90 and we added at the end of the conference call at $11.23, taking us to about a 4.6% position.

Other Stuff

  • Look for comments/graphs on U.S. Generation this week,
  • Look for additional cheat sheet updatse for top 10 ZLT names with additional price target levels over the next two weeks,
  • Look for a NOG (unowned) requested update this week; we noted yesterday they plan to commence a 1.5 cent quarterly dividend beginning next April.
  • Look for a ECA (unowned) requested update next week,
  • Oil Macro 2020 - next week,
  • Natural Gas Macro 2020 - next week (likely).
  • MR - COB out, going to another job, no disagreement noted, adding from within to replace (Albert, former COO of Consol's gas segment).
  • WPX director bought 10K shares at $11.31 today (would have been just after the call, alongside me).
  • VWDRY - 53 MW order for 3 sites in Poland, 20 year service contracts, with delivery starting 2Q20.

Odds & Ends

Analyst Watch:

  • TBA in comments

80 Responses to “Tuesday Morning – WPX”

  1. 1
    zman Says:

    Analyst Watch:

    WPX – RBC ups target to $17 from $16.

    In line with us as noted above. For reference, a 6.0x multiple of our 2020 EBITDA estimate = $19.

  2. 2
    zman Says:

    “Russian oil producers to cut output under new OPEC+ restrictions proportionally — Lukoil”

  3. 3
    zman Says:

    For Thursday: retreated over night

    Reuters now at -85 Bcf
    Bloom at -82 Bcf

  4. 4
    zman Says:

    For ease of reference, here is the section on WPX yesterday pre call:

    WPX Announces Felix Buy – accretive on cash flow, free cash flow, debt metrics improve based on a $50 oil deck for 2020

    $2.5 B buy of private Permian player Felix
    $1.6 B in WPX stock (153 mm shares)
    $900 mm in cash via new WPX senior notes offering
    Equals 3.5x estimated 2020 Felix EBITDA on $50 oil (implies 2020 $50 EBITDA of $715 mm)
    Accretive on all key metrics,
    What Felix Brings:
    – 2020 production estimate of 60 MBOEpd (70% oil)
    – 1,500 gross locations (2 mile lateral) on 58,500 net acres in the Stateline area of the Delaware – this acreage is well thought of.
    – Only 25 more wells hold all Wolfcamp and 3rd Bone Spring locations so it’s basically HBP’d
    – Recent pads with 12 month production at 240,000 bopd (oil only rate) – this is strong
    Free Cash flow. At $50 they forecast significant free cash flow.
    They are implementing a $0.10 per share dividend
    They see buying shares back opportunistically.
    Balance Sheet improves:
    Pre deal WPX at 1.6x net debt / EBITDA
    Pro forma (using the $50 priced EBITDA), they would be at 1.5x using our estimate for WPX EBITDA at $50 oil.
    Quotes: “Now we can accomplish these objectives for shareholders more quickly and efficiently with the irrefutable benefits of the Felix transaction. Delivering on our plan ahead of schedule in a highly de-risked, leverage-neutral manner is consistent with our opportunistic approach,”

    We hold a just under 4% position in WPX. Expect the stock to dip and expect us to add on the dip likely today.

  5. 5
    Viper1 Says:

    Imperial Capital raised WPX Energy Inc (NYSE:WPX) price target from $13 to $17. WPX Energy shares closed at $11.90 on Monday.

  6. 6
    zman Says:

    WPX – technically more interesting now, obvious targets $12.39 and September intra day $12.70. No issues on valuation. No substantive filings yet with reserves for Felix but the combination is going to eventually show them at a low, low TEV/1P BOE at YE19. All of that data is currently omitted from the DEF14A’s for now.

  7. 7
    zman Says:

    re 5 – in line with us. I went $16 from a prior $13 (issues last week), really it’s $17 but I rounded down. Good to see basically on same page at 30 to 40% NTM upside. No one should get too aggressive with the pro forma ’20 multiple until they give more color on opex/BOE. Wonder where Singer at GS came out on it, he sounded positive. Also, if anyone see’s Joe A comments post call let me know, thanks.

  8. 8
    zman Says:

    Housing starts at 1.365 mm rate in November, above expectations. October also revised up.

    Building permits jump to 12.5 year high.

  9. 9
    elduque Says:

    Goldman cuts CLR to a sell new price target $28 from $35.

  10. 10
    zman Says:

    Vestas – another order in Poland today as noted above, order intake accelerated in December plus we will get a sizable amount of undisclosed bookings when they report year end.

    Stock marked higher again this morning. Macro wind stories and big orders everywhere with the production tax credit starting to expire in the States.

    See our last Vesta piece here:

    or use the pulldown menu at upper left to see site specific stuff.

    This constant order flow announcement (almost every other day) has driven the name and we expect managers to want it in their portfolios prior to year end. Then would expect the name to relax some as again, it’s not uber cheap now. Next year may ease on order flow slightly but revenues are set to move higher as deliveries from the PTC phaseout finally arrives. Note also service is a big deal with these, many 10, 20, 30 year service contracts are attached to these orders. EBIT margin on that is much higher than on the turbines them selves and the backlog for those is roughly equal to turbines at > 16 B euros apiece.

  11. 11
    zman Says:

    re 9 – whoa, thanks. Hamm out and they punt on the name eh? Will take a refreshed look there soon. Noted in the post Anadarko Basin DUCs are getting burned through but CLR (personal only) is quite active on the rig front.

  12. 12
    zman Says:

    WTI treading about at $60.50 (right in the middle of our near term expected range post OPEC+). Brent continues to maintain a >$5 premium.


  13. 13
    zman Says:

    Mid-Cush continues to hold in $1 ish premium territory.

  14. 14
    zman Says:

    COG – Upside call activity flagged.

  15. 15
    zman Says:

    WPX – Upside call activity flagged.

    ENPH (unowned) as well.

  16. 16
    zman Says:

    Analyst Watch

    HAL – Susquehanna cuts target by $2 to $28.
    – sees international spend in ’20 more constructive
    – sees cost cutting efforts in NAM driving margin improvement.

  17. 17
    zman Says:

    WPX called higher.

  18. 18
    zman Says:

    LPI – someone came out of size pre market, dropping them $5 at the open.

  19. 19
    Viper1 Says:

    REGI alternative energy play biofuels on tyhe move see no mnews

  20. 20
    zman Says:

    and so, our follow on play to VWDRY is TPIC.

    So many orders, many will use outsourced blades for the turbines.

    From TPIC – “Provides wind blades to some of the industry’s leading OEMs such as: Vestas, GE, Siemens/Gamesa, Nordex, and ENERCON”

    In fact, Vestas is 46% of TPIC’s business. Followed by GE at 27%.

    Not bad to have both names constantly in the press announcing orders.

    Since I started typing this VWDRY dropped another order on the tape, hang on …

  21. 21
    zman Says:

    re 19 – will put on a post it note, thanks.

  22. 22
    zman Says:

    Adding to 20

    VWDRY second order announcement of the day:
    21 MW in Australia
    25 year contract
    Delivery set for 3Q20

  23. 23
    zman Says:

    WPX up another 6%.

  24. 24
    zman Says:

    TPIC – technically increasingly interesting, about to get into the 3Q gap down caused by management inadvisable baubbling of the annual investment call. But if your biggest client is announcing orders on a near daily basis into year end there are those who will want to own it on the cheap (here). Having added a Trading position on top of the Core on post 2Q weakness and have held onto both. We hold TPIC as our #3 position. Our cost for those that care is now $25.03, with our last add around $20 with our initial entry early this year near $31 … so clearly not perfect timing on my part but it’s coming back and should be benefiting from improved Wind space sentiment and order flow. We will re access with the annual investor day update how long term we want to be but this is over done to the down side for now. Please see the positions page here:


  25. 25
    zman Says:

    Cheapest low debt, mid margin, oilier than not E&P we watch:

    BCEI – at $20.60 now, recovering. And at that price it trades as such:

    2019 E 2.3x
    2020 E 2.0x
    2020 E Z4 $50 2.2x
    2020 E Z4 $60 1.9x

  26. 26
    zman Says:

    JKS with a $22 handle, nice to see the break back higher there in the wake of the US not hit bi-facial panels and again, on green buys into year end.

    Increasingly technically interesting at $23 and more so at $24. Very solid 3Q call as covered here:


  27. 27
    zman Says:

    re 26 – recent additions on the dip have us with a 18.58 cost basis.

    Site tip: You can quickly access all tagged post writing on a name by typing this format in the address bar:


    Or you can use the pull down menu at upper left to do the same.

    If you know the rough date of earnings that helps or a big news event as you can then easily page through entries by date.

    Select the one you want, then use the “find in this page” function on your browser to find post and comments containing that ticker or topic.

  28. 28
    zman Says:

    HPR up another 10%. Single digit midgets on the move.

  29. 29
    zman Says:

    MR about to break up through the rapidly descending 200 day sma.

    OK – grabbing coffee, then to work on a model. Shout if you need something.

  30. 30
    zman Says:

    WPX – smashed up through its 200 day with today’s move having kissed it yesterday.

    HPR – at $1.52 (big % moves because it’s so smashed), 200 day above at $1.70, looks to be an easy get and fine from a valuation standpoint.

    At current levels:
    Multiple Upside Target Vs Current
    Of Z4 2020 E $50 oil 3.5x $2.40 58%
    Of Z4 2020 E $60 oil 3.5x $3.15 107%

  31. 31
    elduque Says:

    I have a channel on Crude, hitting the top end. Channel started at the beginning of October.

  32. 32
    zman Says:

    re 31 – I see it, would be pleased for WTI to just churn about near current levels for a month or two ($57 to $62 would be excellent).

  33. 33
    zman Says:

    Pet peeve watch:

    When it’s December and your last presentation is dated August.

  34. 34
    zman Says:

    LPI – extending above the 200 day now. Please see our variety of commodity based price targets in this post last week:


    I would not expect to wait around on the $60,$2.50, 20% NGL/WTI case target as this is our only current Trade only position but point is the thing can move a lot and not really move the multiple out of “cheap” territory.

  35. 35
    zman Says:

    Working on requested NOG (unowned)

    Shout if you need something.

  36. 36
    zman Says:

    PE just crossed back above the 200 day sma for the first time since a brief trip above it in October, which was at that time the first time since the group fall in October 2018.

  37. 37
    zman Says:

    LPI going for a $3 handle. No trouble on valuation as noted above.

    23% of float short,
    Short position up 8% in the last two weeks.
    Now 7.7 days to cover.
    Hope they are enjoying the move from $2 to $3 so far.

  38. 38
    zman Says:

    From Zorg:

    LBRT – “Extened now, taking a break at major previous acceptance (10.70) Major upside target at 12.29 to my eye.”

  39. 39
    zman Says:

    From Zorg

    TPIC “Lot’s of interesting levels ahead. Nice follow through on yesterdays big volume day, breaking above the first layer of supply above the lows and challenging the second layer now (thins out above 19.30). Z4 research strikes again. Thxs for the ride!”

  40. 40
    zman Says:

    From 29 above:

    “MR about to break up through the rapidly descending 200 day sma.”

    … and done. Up 6% now, $7 handle, etc.

    See cheat sheet from last Tuesday:

    or for more text see here from yesterday:


  41. 41
    zman Says:

    Not everything “green” is good though

    We wrote up VSLR (unowned) and its not doing great

    And tidal power name OPTT (unowned) and it has drowned since we said no entry.

  42. 42
    tomdavis12 Says:

    PE had closed @ $18.5/sh the Friday before the SA attacks. Will look to some covered calls again if they get there.

  43. 43
    zman Says:

    From Zorg:

    Re HPR “Rolling towards the next upside target at 1.79…2.20 beyond that….”

  44. 44
    zman Says:

    re 42 – thanks Tom. It’s still our #2 behind MGY.

  45. 45
    zman Says:

    HPR up 14% now. Over done to the down side meets:

    $60 oil
    18% of float short

  46. 46
    zman Says:

    Here, reading for the next 20 minutes, shout if you need something.

  47. 47
    elduque Says:

    Robry is -76 and -95

  48. 48
    zman Says:

    From Zorg

    Re LPI “Enjoying muchly…Working through congestion…Extended short term…supply begins to thin out above 3.20”

  49. 49
    Viper1 Says:

    AR big call option purchase

  50. 50
    Viper1 Says:

    .Antero Resources Option Alert: Jan 17 $3 Calls Sweep (2) near the Ask: 8979 @ $0.226 vs 3573 OI; Earnings

  51. 51
    zman Says:

    re 49/50 – thanks, not long AR at this time but thanks.

  52. 52
    zman Says:

    Brent with a $66 handle. Back to Saudi attack pricing without all the literal sturm und drang.

  53. 53
    zman Says:

    HPR and BCEI – totally different valuation metrics.

    Both exactly 2.6% below their 200 day sma’s.

    Efficient markets my butt.

  54. 54
    zman Says:

    Don’t get me wrong, I own them both, and more of the HPR due to overweight trading position, pleased its up 16%, just funny they are both spot on discount to 200 day. Moving together without regard for value. BCEI should be a lot higher. Please note the upside targets for both in the last cheat sheet updates for them.

  55. 55
    zman Says:

    Private equity types have got to be looking for the next WPX to unburden them in the wake of the 15+% rally post announcement in the buyer’s price.

  56. 56
    zman Says:

    New name report likely coming by Friday.

  57. 57
    zman Says:

    FANG = canary? Trying to turn lower.

  58. 58
    nrgyman Says:

    RE 55: Sellers must price their assets attractively while taking shares in the merger so those shares have room to move higher. WPX got a good price and the PE firm is now enjoying the move higher.

  59. 59
    zman Says:

    re 58 – right, monetization in time, 180 day lock up on part of it, plus cash now. Key to not further leverage the buyer, key to have high margin target.

  60. 60
    zman Says:

    Published yesterday.

    Feel free to share about.

    Because caring is sharing.


  61. 61
    nrgyman Says:

    RE 55: COP is a name that ought to be in the buyers camp. They have plans to make the Permian their major growth thrust in the future and they have what appears to be scattered Permian assets. An acquisition to bolster their Permian holdings in a concentrated core area would make sense.

    COP has the wherewithal to acquire almost anyone, but their plan is for using FCF for buybacks and dividends. They have been subject to complaints that their dividend is too low, especially after cutting it during the oil crash. Not holding my breath that COP will do any deals, but they should imo along with certain asset divestitures to improve their LT portfolio. Some good acquisition fits: WPX + CPE, PE + CPE, FANG + CPE. COP is currently marketing their gassy eastern TX/LA assets, 25% of their AK assets and should consider monetizing their Montney assets (high natgas/NGLs).

  62. 62
    zman Says:

    re 61 – agreed, see last comments on under COP (unowned) on pull down menu.

  63. 63
    zman Says:

    Hear, reading, shout if you need something.

  64. 64
    zman Says:

    From Zorg:

    Re MR “Very sexy chart to my eye….Breaking above 12 month base with minimal supply until low 10s. Extended but building acceptance at these higher levels.”

  65. 65
    nrgyman Says:

    Blackstone (BX) and some partners are taking over Tallgrass Energy (TGE), a midstream name, for a 23% premium. This follows the ET acquisition of SEMG and the IMF Investors takeout of BPL as recent midstream deals with a significant premium offered to the selling midstream name. Bolsters the notion that certain names (at least) in the sector are cheap and attractive to acquirers. Consolidation (to optimize system assets/reduce costs), peak capex (now turning lower after the peak buildout period) and export efficiency are major themes current in the midstream space.

  66. 66
    james T Says:

    re57 Fang canary moves with oil price, hearing big import number this week ?

  67. 67
    zman Says:

    re 66 – according to Refinitiv data, yep. Not necessarily net imports, but imports without exports, yep.

    Also, FANG’s had a pretty good lift off the bottom and into the earnings gap. Chat with Wyoming the other day and he’s in the careful camp there with regard to their guidance (as it pertains to offset operator shut in impacts).

  68. 68
    zman Says:

    Natural Gas Storage Preview

    Street is at – 89 Bcf for Thurday’s report. 

    Last Week: -73 Bcf
    Last Year: -132 Bcf
    5 Year Average: -112 Bcf

  69. 69
    zman Says:

    New name will be in Thursday’s post.

  70. 70
    zman Says:

    Current Bloom consensus:

    Stocks (Million Barrels)
    Expected Which Would
    Change Yield Stocks of
    Crude (2.2) 445.7
    Gasoline 1.9 236.7
    Distillate (0.3) 123.3

  71. 71
    zman Says:

    Consequences of rig and frac spread count drop. They should look at the knock on impacts as well.


  72. 72
    zman Says:


    Back around API time.

  73. 73
    zman Says:

    API apparently disappointing, numbers in a bit.

  74. 74
    zman Says:

    API Watch:

    Crude:  Up 4.7 mm barrels,
    Cushing: Down 0.3 mm barrels,
    Gasoline: Up 5.7 mm barrels.
    Distillates: Up 3.7 mm barrels.

    Hmmm. We expect a bounce in refiner throughput and gasoline demand tomorrow with EIA.

  75. 75
    zman Says:

    NOG (unowned) – management changes on the tape.

  76. 76
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  78. 78
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