HOUSTON—Transforming a company from 66% natural gas to 60% oil and liquids, and doing it during one of the worst industry downturns ever, is harder than it looks. Take it from Rick Muncrief, chairman, president and CEO of WPX Energy Inc. (NYSE: WPX), who in that time bought and sold assets worth about $6.5 billion.
WPX’s oil production has grown by double digits in each of the past four years.
“In essence we’ve built a brand new company,” he told the recent Houston Producers Forum, when he officially became WPX's chairman. “Now we’re ready for WPX 2.0. It will be about the execution on our assets now.”
Muncrief joined the Tulsa, Okla.-based company in May 2014. He came from his former position as COO at Continental Resources Inc. (NYSE: CLR) under Harold Hamm, with a mandate from the WPX board to make sweeping changes. The company had been spun out of pipeline giant The Williams Cos. Inc. in December 2011 as a separate upstream entity and was heavily weighted to natural gas production.
“What I found was a company that had struggled historically from a margin perspective. It had high operating costs, which is actually common when you are spun out of a much bigger company. Within the Williams family of companies it had been a bumpy road, and when you are spun out you become more exposed.”
Muncrief set out to bulk up on oil and reduce exposure to natural gas, improve financial metrics and change the culture. “Culture will eat strategy for breakfast every time,” he said.
He instituted what he calls the ABCs, with A standing for accountability, B for bias for action, and C for continuous improvement.
“I wanted the employees to absolutely have the sweet taste of success. But, then again, I told them, never get caught in the trap of saying, ‘We’ve arrived and we’re done.’”
One of the first things he had to do was analyze what sort of employees WPX had; he said he found some world-class people and some at the other end of the spectrum, and changes were made. Significant layoffs also occurred due to the downturn.
Next he sat down with the executive management team and the board and they decided to shrink from operating on seven core assets to three, the Williston, San Juan and Piceance basins.
Muncrief’s subsequent deal making transformed the company. It involved selling assets in Argentina and Colombia, exiting the Marcellus Shale and Powder River Basin, selling some interests in Colorado and selling Marcellus firm transportation capacity.
“It wasn’t exactly easy like selling the core of the Delaware Basin,” Muncrief said with a laugh, “but we were feeling pretty good after all this—then November 2014 hit.”
In 2015, WPX shares had plunged 80% since peaking in early 2014; some of the bonds traded at 50 cents on the dollar. The transformation continued.
WPX’ s largest acquisition, and most transformational, was for the Permian-focused assets of RKI Exploration & Production in August 2015, for $2.75 billion. The largest sale was of the legacy Piceance Basin assets, which were sold to Terra Energy Partners for $910 million in February 2016.
The road was not easy. Within two weeks of the huge RKI deal, crude prices tanked and capital markets for oil and gas froze. “Now we were really on the clock, so we sold the San Juan midstream system, then we sold the dominant position we had in the Piceance as we were transitioning to oil. That had 3,500 wells and it went to Terra Energy.
“We in essence traded the Piceance for the Permian.”
The company repurchased 2017 notes early and in January 2017, made a $775-million bolt-on purchase in the Delaware Basin. It added another 18,000 acres. WPX paid for the deal by issuing $600 million in equity and using some cash on hand. Now it will run seven rigs in the Delaware.
The portfolio of WPX Energy has vastly changed in the past two and half years, and now it’s about shifting everything else to execute on the assets and deliver results. In 2016 the shares rose 157% and now trade around $14.
Leslie Haines can be reached at firstname.lastname@example.org.