Tulsa-based WPX Energy on Monday announced the $2.5 billion purchase of Denver-based Felix Energy, one of the highest quality Delaware Basin operators.
The companies anticipate closing the transaction, unanimously approved by WPX’s board, early in the second quarter of 2020.
WPX also announced that it would begin issuing a dividend after the deal closes. The company is targeting a dividend of roughly $0.10 per share on an annualized basis at initiation.
Following news of the purchase and dividend, WPX’s stock closed at $11.90 per share Monday, an increase of 9.07%.
The purchase price for Felix consists of $900 million cash, subject to closing adjustments, and $1.6 billion in WPX stock issued to the seller. WPX plans to fund the cash portion through issuance of $900 million of senior notes. WPX also has obtained committed financing from Barclays in connection with the transaction and has full access to a $1.5 billion revolving credit facility.
The stock consideration comprises approximately 153 million WPX shares, which is based on the 10-day volume-weighted average price as of Dec. 13. The transaction is subject to customary closing conditions and approval by WPX shareholders.
Felix has about 1,500 gross undeveloped locations and 58,500 net acres in an area of the basin primarily located in west Texas, according to a map released by WPX. The expected production is roughly 60,000 barrels of oil equivalent per day (70% oil) at the time of anticipated closing.
The company noted in a press release that the acquisition and dividend program follow other steps WPX took in 2019 to “enhance its value proposition, including reducing net debt, executing attractive midstream monetizations, launching a share buyback program and generating free cash flow.”
The company press release says the acquisition “is consistent with all of the tenets in WPX’s five-year vision for shareholders that the company introduced in November during its third-quarter report.”
“Meeting the five-year targets we communicated is the absolute standard and benchmark for any investment we make,” WPX Chairman and Chief Executive Officer Rick Muncrief said in a statement. “Now we can accomplish these objectives for shareholders more quickly and efficiently with the irrefutable benefits of the Felix transaction. Delivering on our plan ahead of schedule in a highly de-risked, leverage-neutral manner is consistent with our opportunistic approach.”
The company said it expects to generate significant free cash flow on a pro forma basis in 2020 at $50 per barrel oil. “Following the acquisition, cash flow per share, earnings per share, free cash flow per share, return on capital employed and cash margins are all expected to increase,” the press release states.
Pending the transaction’s close, WPX expects to add two members to its board from EnCap Investments L.P., the private equity company that founded Felix Energy. EnCap has a history of creating value in the energy sector.
“This is an exciting day for both Felix Energy and EnCap,” Doug Swanson, managing partner of EnCap, said in a statement. “Over the past four years, the Felix team has worked tirelessly to build what we consider to be a world-class Delaware Basin asset. Given the current market environment, we are strong believers in consolidation and feel that the Felix asset base is a clear strategic fit for WPX.”
Marty Phillips is managing partner and founder of EnCap.
“EnCap is pleased to be partnering with WPX, which we believe is one of the premier public companies led by a seasoned and proven management team,” he said in a statement. “We trust in WPX’s vision, operational expertise and strong leadership, and we look forward to a long and successful partnership.”
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