DENVER—WPX Energy Inc. (NYSE: WPX) has probed, dealt and drilled in the Delaware Basin in 2017—landing wells in eight Permian Basin horizons—and patiently preparing its plan of attack.

Tulsa, Okla.-based WPX has put in motion infrastructure, natural gas contingencies and a strategy to drill itself out of debt. The company is scrutinizing its March purchase of Panther Energy for $775 million and has set in place agreements and investments in pipeline.

And in exploration, WPX has revealed many surprises, including what the company needs and what it doesn’t. A cache of New Mexico dry gas is clearly a ‘doesn’t’ for WPX.

On Aug. 15, WPX COO Clay Gaspar told a packed room at EnerCom’s The Oil and Gas Conference that it plans to sell about 130,000 net acres in the northern portion of its San Juan Basin assets.

While some investors have urged a sale for a while, the southern San Juan will remain in the portfolio. But the north was always a backup for a time when natural gas might return to competitive pricing.

That changed as WPX explored the Delaware position it bought two years ago from RKI Exploration & Production for $2.75 billion.

Gaspar said one of the zones it tested included the Wolfcamp D, where it flowed back four wells. At first blush, the zone is “a little bit challenged because it’s 30% oil,” he said.

“So where does that stuck up in our portfolio development? It’s probably going to fall behind our gold standard, the Wolfcamp A,” he said.

Wolfcamp D, with its liquids content, did present a more attractive option than the dry gas assets of New Mexico.

Gaspar said that commodity prices can swing at a moment's notice, so WPX wants the optionality to turn on the gas if it “makes a move relative to oil” profitability.

The new plan: the Wolfcamp D will become the company’s standby HBP gas option.

“We’ll put it on the shelf. We’ll be ready,” he said.

That leaves the San Juan’s dry gas less important, particularly with the Avalon and Wolfcamp D “right under our feet.”

“In all reality, it’s not going to get funded,” Gaspar said.

For shareholders, Gaspar said, the right thing to do is to test the San Juan on the market.

“We have a very firm holdback price we’re not selling below,” he said. Still, of the 130,000 acres, a third is operated and the remainder of the interests is a nonoperated position held by Hilcorp Energy.

“This is not a huge transaction,” Gaspar said. “It’s more polishing the portfolio. I would expect we should be able to close this year assuming we go forward with the transaction.”

Life And Debt

After all of WPX’s “preemptive work in the first half of the year” the company is gearing up to blitz the Delaware, Gaspar said.

The company has simultaneously concerned itself with finding outlets for its production. That will be critical for the company since WPX recently revised its oil growth up to 40% from 30%.

Gaspar also reminded the audience that WPX’s Williston Basin assets continue to be a “powerhouse.”

Still, the overhang on WPX stock is debt and how the company will move beyond it.

“The story for us is that we’re still viewed as a highly levered company,” he said. WPX is aggressively pursuing a change in its debt from 4x net debt to EBITDAX to less than 2.5x by the end of 2018.

Gaspar noted that companies get into debt two ways: bad decisions and those that buy “world class assets that are 3% developed.”

“We are looking to delever through the drill bit,” he said.

While WPX faces the temptation to drill through its inventory—its hedges cover about 80% of oil at $56 a barrel—the company will stay disciplined.

“Our industry is notorious for” overspending and cutting corners, Gaspar said. “So discipline is an incredibly important for this transition period.”

He added, “We are brutal on capital.”

In that respect, the RKI acquisition itself continues to pay off with new discoveries.

Panther And The JV

One area that’s caught the company’s attention is the Third Bone Springs, with a 30-day average of 1,647 barrels oil equivalent per day (boe/d), 50% oil.

“This was a zone that was never contemplated in the original acquisition with RKI,” Gaspar said.

While the company’s Wolfcamp A is reliable and offers a tremendous inventory, assets such as the Third Bone offer competition internally for capital.

Similarly, the Panther acquisition for 18,100 net aces and 920 gross locations also shifted WPX’s thinking.

“The eastern Loving [County] and central Reeves [County} compete for capital in a huge way,” Gaspar said. “Even the one mile laterals are so strong. We need to understand that rock.”

WPX plans to watch peers’ progress in the area with development some time off.

The early part of the year was also spent developing midstream options that will keep WPX from being at the mercy of potential pipeline gridlock—as well as easing its last mile costs.

WPX entered into a joint venture (JV) with Howard Energy Partners in June that adds midstream infrastructure on the Texas-New Mexico state line. WPX said in June that the JV increases its infrastructure value to $863 million.

“We’re thrilled with our partners,” Gaspar said. “To us, on the receiving side, that’s $300 million in cash upfront and a substantial carry as we continue to build out gas processing and oil development for the area.”

The JV encompasses a 50,000-acre area and covers gas processing and oil gathering. By mid-2019 the assets total capacity could reach 125,000 barrels of oil per day.

WPX has also invested equity commitments in two pipelines and directly contracted with sand mines.

The company is covering all of its bases, but not without forethought.

WPX held back on midstream development for some time as it sought to understand its development plan. The company has signed agreements to move oil, gas and NGL to the Gulf Coast.

“The Delaware Basin oil [midstream] JV is a different kind of JV in the sense that we’re an equity owner in the pipe,” he said. The infrastructure will move production to local regional hubs.

“Moving oil by the pipe is incredibly efficient, especially in a hot basin as trucks and truck drivers become very precious commodities,” Gaspar said. “The more oil you can move on pipe the more continuity you can have in your operations and also it’s much more cost effective.”

Darren Barbee can be reached at dbarbee@hartenergy.com.