WPX Energy joined the oil and gas consolidation game, announcing Monday that it was acquiring EnCap Investments-backed Delaware Basin operator Felix Energy for $2.5 billion.
Weil advised WPX with a team co-led by Dallas partners Glenn West and James Griffin with assistance from Houston partner-elect Samuel C. Peca and Dallas associates Rob Martin and Wei Xu.
Specialists included tax partner Jonathan Macke and associates Alex Farr and Anais Ning, both of Dallas; and banking and finance partner-elect Vynessa Nemunaitis and associate Brendan Conley, also of Dallas. Lawyers in the firm’s New York and Washington, D.C., offices also worked on the transaction.
Weil’s West and Griffin have counseled WPX on deals before, including its acquisition of RKI Exploration & Production in 2015 for $2.75 billion (along with Dallas partner Rodney Moore and Dallas co-managing partner Courtney Marcus on the financing).
West also advised WPX on the sale of unit Apco Oil & Gas International Inc. to Pluspetrol Black River, also in 2015, for $427 million.
WPX’s in-house counsel included general counsel Dennis Cameron and VP and corporate secretary Stephen Brilz.
Vinson & Elkins assisted Felix with a team led by partners John B. Connally, Doug McWilliams and Matt Strock in Houston with assistance from partner Danielle Patterson, senior associates Crosby Scofield and Austin March and associates Michael Zarcaro, Cesar Leyva and Jameson Miller.
Specialists included partners John Lynch and Lina Dimachkieh and associate Dan Henderson on tax; partner Sean Becker on labor/employment; senior associate Kristy Fields on executive compensation/benefits; partner Larry Nettles and senior associate Matt Dobbins on environmental; and partner Brian Moss and senior associate James Longhofer on finance.
The firm has worked on past deals with Felix – and with EnCap – including the sale of Felix’s first incarnation to Devon Energy in 2015 for $1.9 billion.
Barclays and Tudor, Pickering, Holt & Co. were WPX’s financial advisors on the transaction. Gary Posternack advised from Barclays and Maynard Holt and former Baker Botts partner Paul Perea were part of the TPH team, which included Travis Nichols, Kirk Chatawanich, Jake Boos, Andrew Perry, Jon Bates, Joe Stockmeyer, William Xia, Marissa Topolski and Reese Dunn.
Jefferies assisted Felix, including Ralph Eads, Guy Oliphint, Ananth Shankar and Victor Sinn.
The purchase price includes $900 million in cash and $1.6 billion worth of WPX stock, including 153 million shares based on the 10-day volume weighted average price as of Dec. 13.
Analysts thought the deal was attractive for WPX, with Piper Jaffray’s Simmons Energy estimating that the company is paying $7,000 to $12,000 per acre or $300,000 to $540,000 per net drilling location. That price compares favorably with Parsley Energy’s $2.27 billion purchase of Jagged Energy in October, the firm said (V&E also advised Jagged on that deal with Kirkland & Ellis assisting Parsley).
“The company is increasing Delaware scale at an attractive valuation and gradually pivoting away from the Williston, which was poised to exhaust inventory in the coming years at the current pace of activity,” Simmons senior analyst Kashy Harrison in Houston said in a note.
Gabriele Sorbara, an analyst at Siebert Williams Shank & Co. in New York, said the deal would place WPX “on the cusp of large cap territory” but raised possible concerns about acreage quality and well productivity on the company’s easternmost acreage pushing up against the Central Basin Platform.
Sorbara added that WPX could consider selling its midstream assets to fund part of the purchase price, which he valued at around $1 billion, including its interest in its 2017 joint venture with Howard Energy (Holland and Hart counseled WPX on that deal).
WPX plans to fund the cash portion of the transaction by issuing $900 million in senior notes. It received committed financing for the deal from Barclays and has full access to a $1.5 billion revolving credit facility.
The parties expect to close the transaction early in the second quarter of next year if it’s cleared by WPX shareholders. Two EnCap executives are expected to join its board.
WPX called the deal “opportunistic,” with the purchase price coming in at 3.5 times next year’s estimated EBITDAX if West Texas crude averages $50 per barrel.
The company said the deal will help it initiate a dividend to shareholders (10 cents per share per year initially) and buy back shares, as Felix will add to earnings, cash flow, return on capital employed and net asset value.
Felix’s production is 70% oil, which 63% oil-weighted WPX said will enhance its margins and inventory (including 1,500 gross undeveloped locations in the basin’s eastern portion). WPX said Felix’s 1,500 gross drillable locations compete with the returns from its position in the Stateline area of the Delaware Basin.
The company also expects the transaction to be leverage neutral, enhance its scale and produce significant operational synergies.
WPX has focused this year on cutting debt (which it expects to reduce further through 2021), selling off midstream assets, launching a share buyback program and generating free cash flow. The company said the acquisition is consistent with the tenets in its five-year vision for shareholders it 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 CEO 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.”
EnCap managing partner Doug Swanson said the Felix team has worked to build what the private equity firm considers 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,” he said.
EnCap managing partner Marty Phillips added that his firm believes WPX is one of the premier public companies led by a seasoned and proven management team. “We trust in WPX’s vision, operational expertise and strong leadership and we look forward to a long and successful partnership,” he said.