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.

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.

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.

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. Mutual Funds & ETFs

    3 ETFs to Consider Before an Interest Rate Hike

    Learn about potential impacts of the Federal Reserve boosting interest rates and three ETFs that can help you capitalize on the perceived December increase.
  2. Stock Analysis

    GE and the Future of Energy Storage

    Find out how energy storage, led by GE, is surging as power companies search for methods to smooth usage and backstop new technologies.
  3. Mutual Funds & ETFs

    A Complete Guide to Tax Loss Harvesting With ETFs

    Using exchange-traded funds (ETFs) to harvest tax losses can be a smart way to maximize your portfolio's tax efficiency.
  4. Stock Analysis

    Analyzing Home Depot's Return on Equity (ROE)

    Discover what Home Depot's return on equity (ROE) ratio says about the performance of the company and how it relates to historical averages and industry trends.
  5. Mutual Funds & ETFs

    Why ETFs Are a Smart Investment Choice for Millennials

    Exchange-traded funds offer an investment alternative to cost-conscious millennials who want to diversify their portfolios with less risk.
  6. Investing

    Asset Manager Ethics: Acting With Competence and Diligence

    Managers must make investment decisions based on their personal investment process, which in turn should be based on solid research and due diligence.
  7. Forex Education

    Understanding The Income Statement

    Learn how to use revenue and expenses, among other factors, to break down and analyze a company.
  8. Stock Analysis

    Will J.C. Penney Come Back in 2016? (JCP)

    J.C. Penney is without a doubt turning itself around, but that doesn't guarantee the stock will respond immediately.
  9. Mutual Funds & ETFs

    Should Investors Take a BITE Out of This New ETF?

    ETF BITE offers a full menu of restaurants. Is now the right time to invest?
  10. Economics

    Why It Is Important to Follow Crude Oil Inventories

    Discover what oil inventories are, how they are communicated and what important insights they provide into the state of the oil market.
  1. Which mutual funds made money in 2008?

    Out of the 2,800 mutual funds that Morningstar, Inc., the leading provider of independent investment research in North America, ... Read Full Answer >>
  2. Should mutual funds be subject to more regulation?

    Mutual funds, when compared to other types of pooled investments such as hedge funds, have very strict regulations. In fact, ... Read Full Answer >>
  3. Do ETFs pay capital gains?

    Exchange-traded funds (ETFs) can generate capital gains that are transferred to shareholders, typically once a year, triggering ... Read Full Answer >>
  4. How do real estate hedge funds work?

    A hedge fund is a type of investment vehicle and business structure that aggregates capital from multiple investors and invests ... Read Full Answer >>
  5. Are Vanguard ETFs commission-free?

    While some Vanguard exchange-traded funds (ETFs) are available commission-free from third-party brokers, a large portion ... Read Full Answer >>
  6. Do Vanguard ETFs require a minimum investment?

    Vanguard completely waives any U.S. dollar minimum amounts to buy its exchange-traded funds (ETFs), and the minimum ETF investment ... Read Full Answer >>

You May Also Like

Trading Center