WPX Energy (NYSE:WPX) plans to focus on the development of the Bakken formation in 2012 and will use this play as one of its core areas to help grow the company. (To know more about oil and gas, read Oil And Gas Industry Primer.)


Investopedia Markets: Explore the best one-stop source for financial news, quotes and insights.

Separation
WPX Energy is the former exploration and production segment of Williams (NYSE:WMB), which announced a restructuring in 2010 that involved splitting up into separate upstream and downstream public companies. The separation was completed at the end of 2011, with shareholders of Williams receiving one share of WPX Energy for every share owned.

Bakken Shale
WPX Energy established a position in the Bakken through an acquisition in November 2010, purchasing approximately 86,000 net acres for $925 million. The acreage is located on the Fort Berthold Indian Reservation in the Williston Basin. The company picked up existing oil production of 3,300 barrels per day from 24 existing wells, as well as extensive undeveloped acreage.

WPX Energy has been aggressive since the acquisition closed and completed 22 wells over the last year, increasing production to 6,400 barrels of oil equivalent (BOE) per day by October 2011.

After WPX Energy announced the Bakken purchase in late 2010, the company established a production target of 20,000 BOE per day from this play by the end of 2012. WPX Energy is currently operating five rigs in the Bakken and plans to add an additional rig in mid-2012.

Returns
WPX Energy estimates that Bakken wells will generate an after-tax return of 57%. This return incorporates a cost of $9.5 million to drill and complete a well, an estimated ultimate recovery of 700,000 BOE per well and an assumed oil price of $95 per barrel.

Other operators active in the Bakken with acreage on the Fort Berthold Indian Reservation include Enerplus (NYSE:ERF), which has 74,000 net acres here. The company estimates that it can increase production from here to a range between 20,000 and 25,000 BOE per day by 2014.

Credo Petroleum (Nasdaq:CRED) also has acreage exposed to the Bakken and plans an aggressive ramp up in development here in fiscal 2012. The company has budgeted to participate in 20 operated wells and will spend most of its drilling budget in this area.

Delays
One issue that investors should monitor is the difficult environment present in the Williston Basin during certain months of the year. In the second quarter of 2011, many operators active in the Bakken reported delays in development due to a severe winter and flooding.

SM Energy (NYSE:SM) had to shut in wells during the quarter and reported shut-in production of 1,500 BOE per day at the peak. Hess (NYSE:HES) was also impacted by this issue and reported completion delays during the quarter.

The Bottom Line
WPX Energy made a large acquisition of undeveloped acreage with Bakken exposure and aggressively worked these properties in 2011. The company plans to increase activity here in 2012 and will make the oil play in the Williston Basin one of its core areas going forward. (For additional reading, check out A Guide To Investing In Oil Markets.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

At the time of writing, Eric Fox did not own shares in any of the companies mentioned in this article.

Related Articles
  1. Economics

    India: Why it Might Pay to Be Bullish Right Now

    Many investors are bullish on India for all the right reasons. Does it present an investing opportunity?
  2. Fundamental Analysis

    5 Must-Have Metrics For Value Investors

    Focusing on certain fundamental metrics is the best way for value investors to cash in gains. Here are the most important metrics to know.
  3. Stock Analysis

    Analyzing Altria's Return on Equity (ROE) (MO)

    Learn about Altria Group's return on equity (ROE) and analyze net profit margin, asset turnover and financial leverage to determine what is causing its high ROE.
  4. Investing Basics

    Building My Portfolio with BlackRock ETFs and Mutual Funds (ITOT, IXUS)

    Find out how to construct the ideal investment portfolio utilizing BlackRock's tools, resources and its popular low-cost exchange-traded funds (ETFs).
  5. Fundamental Analysis

    4 Predictions for Oil in 2016

    Learn four predictions for oil markets in 2016 including where prices are heading and the key fundamental factors driving the market.
  6. Fundamental Analysis

    Performance Review: Commodities in 2015

    Learn how commodities took a big hit in 2015 with a huge variance in performances. Discover how the major commodities performed over the year.
  7. Investing News

    Icahn's Bet on Cheniere Energy: Should You Follow?

    Investing legend Carl Icahn continues to lose money on Cheniere Energy, but he's increasing his stake. Should you follow his lead?
  8. Stock Analysis

    Analyzing Google's Return on Equity (ROE) (GOOGL)

    Learn about Alphabet's return on equity. How has its ROE changed over time, how does it compare to its peers and what factors are driving ROE for the company?
  9. Investing News

    Is Buffett's Bet on Oil Right for You? (XOM, PSX)

    Oil stocks are getting trounced, but Warren Buffett still likes one of them. Should you follow the leader?
  10. Investing

    3 Things About International Investing and Currency

    As world monetary policy continues to diverge rocking bottom on interest rates while the Fed raises them, expect currencies to continue their bumpy ride.
RELATED FAQS
  1. What is the formula for calculating EBITDA?

    When analyzing financial fitness, corporate accountants and investors alike closely examine a company's financial statements ... Read Full Answer >>
  2. How do I calculate the P/E ratio of a company?

    The price-earnings ratio (P/E ratio) is a valuation measure that compares the level of stock prices to the level of corporate ... Read Full Answer >>
  3. How do you calculate return on equity (ROE)?

    Return on equity (ROE) is a ratio that provides investors insight into how efficiently a company (or more specifically, its ... Read Full Answer >>
  4. How do you calculate working capital?

    Working capital represents the difference between a firm’s current assets and current liabilities. The challenge can be determining ... Read Full Answer >>
  5. What is the formula for calculating the current ratio?

    The current ratio is a financial ratio that investors and analysts use to examine the liquidity of a company and its ability ... Read Full Answer >>
  6. What is the formula for calculating earnings per share (EPS)?

    Earnings per share (EPS) is the portion of a company’s profit that is allocated to each outstanding share of common stock, ... Read Full Answer >>
COMPANIES IN THIS ARTICLE
Trading Center