WPX Energy begins to monetize Marcellus shale assets

WPX Energy (NYSE: WPX) has signed an agreement to sell its operations in northeast Pennsylvania and release certain firm transportation capacity to Southwestern Energy Co. (NYSE:SWN) for $300 million in cash.

WPX’s first transaction involving its Marcellus shale play operations marks the company’s sixth significant agreement it has entered into since May to narrow the company’s business focus, increase scalability of core assets, bring value forward and further strengthen its balance sheet. As previously announced, WPX also recently executed a new five-year, $1.5 billion senior unsecured credit facility.

The sale to Southwestern Energy Co. includes physical operations covering approximately 46,700 net acres, roughly 50 million cubic feet per day of net natural gas production and 63 operated horizontal wells. The assets are primarily located in Susquehanna County, Pennsylvania.

The transaction also includes the release of firm transportation capacity WPX has under contract in the northeast, primarily 260 million cubic feet per day with Millennium Pipeline. Upon the transfer of the firm capacity, WPX will be released from $24 million per year in annual demand obligations associated with the transport.

WPX and Southwestern expect to close the transaction during the first quarter of 2015.

WPX’s remaining operations in the Marcellus shale play primarily consists of its physical operations in Westmoreland County in southwestern Pennsylvania and additional firm transport capacity on Transco’s Northeast Supply Link line. These assets also are targeted for divestiture.

Regarding the transaction with Southwestern, Global Hunter Securities analysts commented, “SWN has agreed to purchase 46.7K net acres from WPX (and 50 MMcfpd of associated volumes from 63 existing hz producers) in Northern Susquehanna Co. for total consideration of $300MM. Assuming a $5K/flowing Mcf multiple on existing production we estimate the transaction equates to ~$1.1K/undeveloped acre. Modest positive; not a surprise to see SWN moving to acquire WPX’s acreage adjacent to its Range Trust area in Northern Susquehanna Co. in light of recent results and bullish 3Q call commentary pointing to encouraging delineation tests stretching as far North as the NY border.”

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