WPX Energy (WPX) To Lower Debts And Strengthen Balance Sheet

WPX Energy Inc. (NYSE:WPX) announced a cash tender offer to purchase up to $500 million aggregate principal amount of its outstanding 7.500%, 6.000% and 8.250% Senior Notes due 2020, 2022 and 2023, respectively. The objective of the company is to further strengthen its balance sheet and lower interest expenses.

The announcement of the tender offer does not come as a surprise since WPX Energy has already announced that it will utilize a major portion of the $700 million sell proceeds of its San Juan Basin assets for lowering its existing debts and further strengthen balance sheet. (Read more: WPX Energy Exits San Juan, Focuses on Delaware & Williston)

The successful completion of the offer will further lower its Total Debt to Total Capital that presently stands at 38.42%, which is currently higher than its industry average of 35.1%.

WPX Energy’s Oil Focus

WPX Energy has transformed itself from a natural gas focused company to an oil-focused one. The company has been able to do so through nearly $8 billion of transactions.

At present, nearly 80% production of the company is oil and the rest natural gas. It was simply the opposite five years ago. This transformation is a result of execution of the company’s plan to produce more liquids.

The strategy gels well with the ongoing recovery of oil prices. The recent report from the U.S. Energy Information Administration (“EIA”) indicates further recovery of Brent prices from 2017 levels. E IA forecasts that Brent spot prices will average about $62 per barrel in both 2018 and 2019 compared with an average of $54 per barrel in 2017.

Higher Oil Production

The improvement in oil prices also bring in higher volumes of crude oil production in the United States. EIA reports indicate that U.S. crude oil production will average 10.7 million barrels per day (b/d) in 2018, which would mark the highest annual average U.S. crude oil production level.

We expect the ongoing improvement in price and production of crude oil will benefit ExxonMobil (NYSE:XOM) , Chevron Corporation (NYSE:CVX) and ConocoPhillips (NYSE:COP) , among others in the space.

Price Movement

In a year’s time, shares of WPX Energy have gained 3.7%, outperforming its industry's decline of 11.8%.

Zacks Rank & Key Pick

WPX Energy carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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