WPX Energy, Inc. 9/5/2012 - 2:25 PM ET Speaker ID 41 Page 1

WPX Energy, Inc. September 5, 2012 2:25 PM ET

Unidentified Participant: Our next presenter here today is Ralph Hill, CEO and President of WPX Energy. WPX spun out of the Williams Company late last year, so this will be Ralph's first presentation here at the Barclays conference. With this, I'll hand it over to Ralph. Ralph Hill:

Thank you. It's a pleasure to be here today. I'd like to talk to you about WPX. I appreciate your interest. A couple of things to remind you about WPX is we're unique for several reasons. We have the ability to grow all three of our product areas to double-digit production over the next five years or more with just what we own today. In this last year so far, we've grown our oil production 57%, our liquids production is up 10%, and our natural gas volumes are up 8%. Natural gas volumes by choice are not growing at doubledigit rate at this point because of low gas prices. But we have an existing portfolio with 18.5 Tcf of 3P reserves, and that gives us our ability to grow our production double digits for the next five years. So, essentially, we can almost double the size of our Company just with what we own today without buying anything new, just prosecuting and drilling what we own today. Few companies our size, I think, can do that without having to add to their portfolio, so we feel very good about that. We have a lot of flexibility in ramping our portfolio up or down, depending on commodity prices, without losing value. We only have one area we need to continue drilling in, and that is in the Marcellus. Everything else is held by production, and the Marcellus itself with a minimal investment, if we decided not to drill there, probably $25 million or so we could hold our leases there. So, really, we have the ability to go up or down in all of our areas. We are a technical and low cost leader, and also it is very important to us to have a strong balance sheet. You will see that from WPX. We had, at the end of the second quarter we had $1.9 billion in liquidity. We believe very strong in a balance sheet like that. It will allow us to grow selectively in areas that we choose to, but with our portfolio, something would have to be very compelling for us to do. And we get a lot of questions about what size acquisitions you are looking at and what do you want to do on the acquisition side. And we really don't need to do anything. I guess we think we could feel comfortable up to maybe $1 billion type range, but we don't have any need to do that, and it would have to be very compelling, so I would not look for us to do that in any of our areas. And by choice and by design, we made this portfolio. So, we're in the best gas and liquids basin in the nation and to us, which is Piceance, which some don't understand, but I'll work hard today to

WPX Energy, Inc. 9/5/2012 - 2:25 PM ET Speaker ID 41 Page 2 make sure you understand that. We're in the best gas basin in the nation in the Marcellus, and we're in the best oil basin in the nation in the Bakken, and that's our -- 95% of our capital is spent in those three areas. A couple of disclaimers. Have to test on that later, as you always do. Let's talk right off the bat, why should you invest in WPX? We are a top 10 domestic natural gas producer. We got away from our message a little bit, but we are a top 10 natural gas producer and we're proud of that. Our average daily production is over 1.1 Bcf a day. The key is we believe one of our areas, the Piceance, could be the fastest area to grow when the time is right, when natural gas recovers. We also in the Piceance we have, and also in the San Juan, not in our 18.5 Tcf of 3P reserves, we have some deeper Mancos gas potential and it's not that deep, of 22 to 33 Tcf of resource potential. None of that is in our reserves. The numbers you see are 3P numbers, so we have a tremendous amount of gas for gas we have today and we have in the future. We also bring the advantage of that large natural gas position to being in increased exposure with oil and the ability to grow our NGLs. Our domestic world production of 12.4 million barrels can grow at a compound average growth rate of 25% to 30% through 2015. Also, our domestic NGL production can go up. The capacity to grow that can more than double, or grow us by 50% by 2014, so great exposure to growing our oil [piece] and NGLs. We have also announced recently $100 million of oil focused exploration activities. As part of Williams, we were not allowed to do that. Now as a standalone E&P company, we are allowed to do that. This allows us to take our portfolio, a very good sized portfolio with a lot of growth in it, and add to it probably earlier, get into plays earlier or develop plays on our own versus buying into a little bit later. We like this opportunity it brings to our portfolio and gives us a little more balance in our growth. Several things, very important. We haven't quantified this before, but improving cost structure is going to lead to increased cash margins. In 2013, all this totals up to about $117 million improvement for us in our cash margin side of the world because of the things that are on here, the Van Hook gathering system improving, the Piceance gathering contract price reduction, the Willow Creek contract automatically renegotiates, and we are going to meet our threshold on a laser pipeline. That brings about $117 million to us, and that is automatic that will happen next year. Not all of it happens day one, but that is, as you can see, some of that is through the fourth quarter of '13. And then we have a Rockies sales agreement which expires in the fourth quarter of 2014, and that brings an additional $88 million. So, on an annualized basis, by 2015, beginning of the year, we will be at $205 million savings of our cost, and I think that's one of the things that looked at as WPX came out. There are some legacy things we had to work through. Those are going away, so it's $205 million improvement just in a couple of years. I mentioned the strong balance sheet of $1.9 billion liquidity with our credit metric, net debt to EBITDAX of 1.1. I think that's superior to most, if not all of our peers. And, again, 95% of our capital is focused on the three main areas, which I'll talk about in just a few minutes. And we are very willing to continue to divest of noncore assets. We did that earlier this year, the Barnett and the Arkoma assets, so we are willing to do that as a management team. Just looking at it graphically of our three main areas. The Piceance is our bread and butter. It's our biggest area, and I will talk about this, but I'm going to say it twice. It's unique to us. We have the superior geologic position of anybody in the nation. The good news is, we have a great position in the Piceance; the bad news is nobody else does, so we're the only ones that talk about it. So, we have to continue reinforcing, it is a good basin for us. In fact, it's a great basin for us.

WPX Energy, Inc. 9/5/2012 - 2:25 PM ET Speaker ID 41 Page 3

The Bakken, you can see the position there, 47.8 million barrels of proved reserves with 180 million barrels of 3P reserves. I'll talk more about each of these in a few minutes. And the Marcellus the third key. At year-end 2011, we had 5.3 Tcfe of proved reserves, over 18,000 domestic locations we own today, into that 18.5 Tcf of 3P reserves. I've mentioned an additional gas resource potential of 22 to 33 Tcf, and our production mix is 79% gas, 13% liquids, and 8% oil. So, it is moving towards a little more oil and liquids, but we are a large gas producer and we're proud of that, and we like the ability that we have to grow both our oil and our liquids. On this slide, I'm not going to go through all the pieces of it, but our primary areas of focus are in the Piceance, the Bakken and Marcellus. The San Juan also will have an area of focus as gas prices return. We have a Mancos gas discovery there of 2 to 3 Tcf that we're prosecuting at the right time. You can see our metrics here. Basically, importantly is, in addition to 18.5 Tcf, is this over 22 to 33 Tcf additional reserves. If you look at the bottom of the slide, the Powder River, Apco and other, those areas we're not putting capital into. And Powder River at this point and where we are, we don't -- and coal bed methane drilling doesn't make sense in this gas price environment, so we are not allocating capital to that. And that's an opportunity for us to decide what to do as that part of our portfolios move along. Apco, as you know, we own 69% of Apco International. We don't put any domestic cash in that, and I'll talk about Apco in a few minutes, but basically Apco is another area that we continue to evaluate and see if that makes better sense for others on down the road. Looking at just some of our metrics, it's always good to have a metric where you lead in, and we -JPMorgan calculated this slide. It's proved, developed, finely developed rates in this chart, and basically you can see here WPX was No. 2, ranked second at $1.48. I won't go into all the numbers here, but we're well below almost all our peers. And this is the fifth time in the last six years we have ranked in the top quartile and we're very proud of this accomplishment. So, $1.48, and this is on the proved, developed F&D rate for 2011. I'll go to each of our basins, talk a little bit about them. Piceance once again. For us and probably for us only, it's a world-class gas and NGL play. Our position geologically is unique relative to the other operators, and we're the only operator with the scale to be efficient. We've drilled over 4,100 wells in this play, and we have 10,000 remaining locations, so we do know what we're talking about and you do need to believe us when we talk about the Piceance. We've only done it 4,000 times. Our low cost structure is driven by technology and operational efficiencies that we've done for many, many years. We have great liquids contracts to generate even stronger returns even in this tough gas commodity price environment. And we believe, my next slide will show this in a few minutes, that if gas turns and when it turns, we are in a unique position to grow our gas production faster than our peers. Looking again, once again, sweet spot of the play, liquids-rich play for us, 30,000 barrels a day of liquids coming out in the second quarter. All of our liquids get priced at Mont Belvieu, which is superior. I mentioned the Mancos potentially come in, and the infrastructure is in place to rapidly grow our production. Basically, there is about, over 2 Bcf a day of excess capacity in the Rockies to move gas out. So, the Rockies has been billed, was overbilled based on the way the gas production is now. So, when the time is right, there is no infrastructure problems like you may see

WPX Energy, Inc. 9/5/2012 - 2:25 PM ET Speaker ID 41 Page 4 in new basins, you may see in the Marcellus areas like that. The Rockies are set up for rapid growth. Piceance, we're the first and fastest to grow when gas recovers, and this is, again, I believe we are best positioned to respond to that. We believe the Piceance size rig -- and the key to this is the Piceance size rigs are not as big of rigs that we need in the Marcellus or some of the other big plays you see other big horizontal plays out there. Those rigs are available and we see we've done it before. The slide on the left part of this -- the graph on the left side show that we had a fouryear growth rate which increased our production by 157 Bcf on an annual basis over that period, from 2004 to 2008. The last couple of years we haven't drilled as much as we had, but the righthand side shows what we can do with only 17 rigs versus the 26 rigs that was required at the time in the 2004 through 2008. So, with 17 rigs we can grow our production again from -- up to 155 Bcf more annually per year. Basically how we do that is each of the rigs now would drill 34 wells per rig per year versus 22, but the key point is, you can see how fast we can ramp our gas up. Now, the growth rates won't be 30% and 40%, because we're coming off such a huge reserve base, or huge production base, but they will be very impressive on what we can do. And, again, we believe we can get the rigs when the time is right and we can get them quickly, faster than we can in other plays. We already have well over 200-plus permits in our inventory and typically that gets higher. We have a very highly experienced team in place. We are very scalable in our operations. We have done it over 4,000 times, so we can make this happen. We are very, very efficient in everything we do. Our water management system is built out. Our LOE is below $0.25 per Mcf in the Piceance, so very, very low operating costs. So, our people, our knowledge and our skills can make this really turn around at the right time, probably faster than anybody else can in the nation in growing their gas. Here is the Piceance Valley type well. What we've done here is added the NGL flat price barrel of $35 a barrel. It's been as high as over $50 a barrel, as you know, and I think currently it is like $33 a barrel, so this is fairly representative or very representative of what we can do. We chart our returns for the Piceance Valley type wells with EUR of 1.2 Bcf and a D&C cost of $1.4 million per well. If you look at the current strip price, the return is over 20% and exceeds over 50% , if you get up a couple more dollars higher. So, you can see very attractive returns even at this lower price environment. Our value wells have an initial production rate of about 1.2 Mcf a day, very low finding and development costs, $1.39. And the NYMEX break-even price here, what we define that is at a before-tax, 10% before-tax return is at $2.63. So, again, the Piceance is very unique to us, and you can see this curve. You can play with it how you want to on the various pricing that we have there. Turning next to the Bakken. We believe our cost in the Bakken and probably for the industry peaked. The good news for us, all acreage, we took over operations of this in April of 2011. We actually bought it in December of 2010, so less than two years we've had it and just over a year we have operations. All of our production we held by -- all of our leases we held by production and the fourth quarter we had 10 wells left. We announced at the end of the second quarter (inaudible) the drill. Those will be done here soon. That's great for us, because it will allow us to begin to go into expected efficiencies. We will conclude the higher single well cost problem we've had. Basically, we have had to move our rigs, bounce around quite a bit. That takes away efficiencies. And we've already done one

WPX Energy, Inc. 9/5/2012 - 2:25 PM ET Speaker ID 41 Page 5 multi-well pad, where we have averaged about 30 drilling days, and that is down from the 37-plus type drilling days we've had in the past. We think we can reduce our drilling days more. We talked about the second quarter. We were disappointed in our well costs for a number of reasons. What was going on, just the way the whole industry was hyper and the cost inflation and other things. We have been able to achieve -- we think we will achieve these costs. One thing that we're doing is we are dropping a rig in the Bakken. We expect to still drill the same number of wells per year because of the efficiencies we're going to get. We want to be at least 30 days at the very -- at least 30 days per well spud-to-spud. We would like to see that go to 25. We won't get there in day one, but you can see the multi-well drilling pad savings is going to save between $1 million, $1.5 million. Our sliding sleeve completion problem has been solved. That's going to save up to $500,000, fewer drilling days. Every day is about $80,000, it could be up to $500,000. And there are a lot of other efficiencies we're pursuing right now. We look at our well costs will be coming down between $2 million to maybe almost $3 million, so the average you all calculated, which is not what we drill every well for, but we had some wells that were coming in at the $12.5 million range. We expect our average to go down more to the $10.5 million range. And the way I am, and you don't know me as my team knows me on that, we will relentlessly pursue that. We want that level to come down. We do have things we use to make our wells maybe more expensive than others, because we do use ceramics, which I'll show that in a few minutes, which adds $1 million to our well, but we think it's the right thing. Looking at our Bakken position, we just took the RBC research note dated on the very recent large transaction in the Bakken for the $1.3 billion deal, $1.38 billion deal. You look at the flowing production at the bottom of the slide, just talks about 10.5 million barrels at 65,000 barrels a day, $65,000 per barrel. You also see $25,000 per acre. Apply that to our position. We're not saying you should or you shouldn't, but the net map on the next page will show that we're very close to where this is geologically, and we actually have participated in some of the wells in the positions that just get bought. It could imply value for WPX as high as $2.8 billion, if you add the $625 million and the $2.2 billion in there. So, we're just applying the metrics to a recent deal to what WPX has to once again reinforce that we believe we're under valued in where we are in the -overall as a company. And the next slide shows that the orange dot there is the position that was just purchased. The yellow is our primary position on the Fort Berthold Indian Reservation, so we're right next to this. And we have actually participated in some wells on that position, so you can see that if you apply those values or anything close to that, how much more value that WPX should be generating. I do want to talk quickly about our performance. Even though our costs were a little higher, our EURs are higher than others on the reservation that we compete with. We do use 65% ceramic and 35% sand. We believe that provides superior results, and this slide here and the slide below and the graph below show that, basically. I mentioned it adds about $1 million to our cost, but we think it does offset the stronger -- the stronger results offset this. If you look at this graph on the left-hand side, it's 180-day rate, which we think is the right way to look at stuff versus public data, where they come out with one-day flows or 30-day flows. This is compiled by IHS Herald, so it's a public data. It uses six-month cumulative production adjusted for down days, and you can see the EURs are calculated using either wells that use sand or wells that use sand and ceramic. You can see WPX is both the leader in the 180-day rate and the leader in the EUR comparison.

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Now, the IHS Herald only uses NBOs, they don't do NBOEs. If you calculate 643 of the NBOs they have on this slide, the NBOEs were in our time curve, so what you'll see in the back, which are between 700,000 and 800,000 barrels per well. So, this does equal our time curves of where we're going. So, we think it shows where we are. There are 67 wells in the peer set that we have that have a greater than 180-day wells, and we have about 12 of our wells in the 180-day rate, so a pretty good data set. It just shows what we think is the right way to do that. On the Bakken well type, and again this is for you. I'm not going to go through this map totally, but we believe in the $10.5 million well cost is where we'll be. We put $11.5 million on there, also, to show where we have been. We also see that our reserves are coming in anywhere between 700 and 10,000 barrels per well, and 800 and 5,000 barrels per well. You can see our returns here basically are between 40% and 57%, particularly if you look at the $10.5 million well cost. And due to expected inefficiencies I already mentioned, and we dropped a rig up here, so we think we'll be able to drill the same amount with five rigs. It puts a little more pressure on our team to do better, more pressure on our service companies, and I think it's the right thing to do, and I think we can still deliver the same results. So, there are lots of numbers on this page, but we hope it helps you model and look at what we have in the Bakken. Our last major operating area is the Marcellus, and basically here it's good to see what we call the Piceance efficiency model kicking in. Basically, we have transitioned a new rig, so they are being built here in the Marcellus build for us. Two of the three are on line already and the third, our Ryan rig, will be delivered in November. All these rigs will help us be more efficient, and we're seeing that as we've gone to -- our drilling times gone down to substantially. I think the average is about 15 to 16 days per well now. We've drilled one well recently in like 11 days. Our production has increased. The only problem we have so far in the Marcellus is we like everything we see up there, we like where we're headed, we like that we reduced our completion cost by 30%, we reduced our drilling time. We have an ongoing dilemma with the infrastructure up there and we hope that will be fixed. You have heard me talk about it before, it's a laser gathering system. Our production continues to be hampered by high line pressure as high as 900 pounds or more some days, and also more the erratic pressure of that. WPZ recently bought that pipeline in February. We believe they will fix it. They're very good at that. It's the business they do. That will be good for us, because you can see here, we had about 30 million a day of gas shut in based on infrastructure constraints. We were estimating that on the end of the second quarter. So, it will be nice to see that get fixed, and we like the Marcellus area. We will only be drilling in the Susquehanna area, which my next slide shows. It shows a variety of two slides in the sense of our EURs are a little different. We have the 7 Bcfe EURs and 9 Bcfe EURs. At this point we are booking the 7 Bcfe EURs. That's because of the erratic lime flow, the pressure that we're flowing into, I just mentioned. We haven't got enough data to understand if we're going to be higher, and I know there is some in Susquehanna that are booking higher reserves than this. So, we wanted to give you where we are today and where we could be. We don't know that yet and the types of returns here that you'll see at the various gas prices. Clearly, if we're closer to the

WPX Energy, Inc. 9/5/2012 - 2:25 PM ET Speaker ID 41 Page 7 9 Bcf type wells, then we can drill really more and continue drilling in the $3 environment. If not, we need to be closer to the $3.50 environment or higher to get where we want to. Our NYMEX break-even here is $2.74 on the -- that's that 10% before tax, and it's $3.25 of the 7 Bcf. So, again, it's a curve just for you to be able to model our Susquehanna type wells and what we're doing going forward. We are a 69% owner in Apco. I'm just going to spend a few minutes on that. But the fourth bullet down I'd like to stress several times. It represents less than 5% of WPX's EBITDAX production and reserves. We put no domestic cash in it. It is self-funding, it always has been self-funding. We have some upside in Apco, we believe, with 250,000 net acres exposed to the Vaca Muerta, and we have four wells we'll be testing this year and understanding our position a little better in the Vaca Muerta. We have had some success in our exploratory activities in Columbia. We have 154,000 net acres there. We have one well that's been online and producing about 2,400 barrels a day. The next well has encountered potential plays in three separate areas that require testing, so we will be completing that well. We have another block that we're getting ready to go and drill in early 2013. So, we're very encouraged with what's going on there, but basically if I look at Apco, none of WPX's cash goes into it. It's all self-funding, and I think it represents pure upside to the WPX shareholders. So, finally, I do appreciate the opportunity to be here today and talk about WPX, and I believe these areas are very key why you should invest in us. We are a natural gas producer and we're happy to be a natural gas producer. But we have a growing position in oil and liquids that is a good part of our capability going forward. But we will be a large natural gas producer and we're about 80% now, and that will probably stay in the 65% range, even with our ability to grow our production and our NGL in oil as much as we can. We have announced the exploration effort, a new exploration effort, and it's all focused for oil. We're excited about that. We haven't told where that is, but we do expect to have some results by mid-2013. That would be targeting about 100 million barrels of recoverable resource at least, and those are good numbers for us. Our cost structure is improving by $117 million in 2013, and by an annualized basis by 2015 by $205 million. I think those are big numbers for us. Our balance sheet remains strong and will remain strong with this management team. We believe very strongly in that, and we're putting our money in our highest return areas. And as we continue to look at it, these areas will compete for that. The areas that aren't returning capital could turn out to be something that really don't make sense for our portfolio. You saw we did that earlier this year with the Barnett assets. We will be willing to continue to look at that and understand what we should do going forward with other aspects of our portfolio. So, with that, we are happy to be out on the road for all of this year. It's been a great reception. I would say that it was unique to us as the tenth largest producer in the nation to come to a new audience and really have to reeducate the world on who WPX is. We were followed primarily by the pipeline analyst side of Williams. I was with Williams for 30 years and I loved that career and I love where I am now. But it's exciting to be out as a pure play E&P company and we're all dedicated, all 1,200 employees are dedicated every day to bringing you shareholder value and a good return on your investment. That's what I have, so I appreciate the opportunity to be here. Do we do breakout now, Tom, or do we do questions? We have a couple minutes in here, which is good. I also have with me, Rod Sailor, our Chief Financial Officer, and David Sullivan, our Director of Investor Relations.

WPX Energy, Inc. 9/5/2012 - 2:25 PM ET Speaker ID 41 Page 8 Hopefully, everybody has David's card. We like him to get beat like a rented mule at all times for questions. So, I know most of you do, do we appreciate that. Questions? Unidentified Audience Member: You paint the picture of security that is significantly under-valued. What probability would you put three years out from today that we'd be a publicly traded company as we are today? Is there any kind of poison pill type stuff in your trotter that would discourage an inquirer? Ralph Hill:

I'd put the odds that we're going to execute on this plan very well, so I think we'll be a public company because I think you'll see us aggressively grow in the right commodity environments, and we know we can at least double the size of our company on our own. So, I guess if somebody was going to come and talk to us, they need to do better than double the size of us. We don't have the poison pills in the sense of those kind of things, per se. If you look at our S-1 filing and the Form 10, there is no clear -- there is initially a staggered board that is part of what happens typically with new spinoffs, but other than that, that's all we have. Tom?

Unidentified Audience Member: I think I heard some hints, but I don't think I heard you say this directly, that you could have some assets for sale, perhaps noncore assets in the Rockies, perhaps Argentina at some point, perhaps other things. Are there things that you would consider for sale and is it premature to ask that question? Ralph Hill:

Well, it's probably premature, but we wanted to show you that this team -- this management team had no problem moving the Barnett assets. We thought it was the right thing to do and actually those were our worst performing assets and just shows as we get out and we talk about WPX and get our story [known], they were actually sold at an accretive basis, which is kind of disturbing to us, but it's a good sale. We don't have a problem with that. But we like to see our better performing assets get valued higher. So, it's premature but clearly we're going to -- the assets that we aren't allocating capital to, we'll take a very strong look at, and when the time is appropriate, which is probably sooner than later, we'll make the appropriate action. Is that fair?

Unidentified Audience Member: How many drilled but uncompleted wells do you have in the Marcellus? Ralph Hill:

Pardon me?

Unidentified Audience Member: How many drilled but uncompleted wells do you have in the Marcellus? Ralph Hill:

I think it was about 30. It's on that slide, I'm sorry, I have to look that up real quick. Is it 30, David?

David Sullivan:

25.

Ralph Hill:

25, 25, okay. That was at the end of the second quarter and we're probably -- yes?

Unidentified Audience Member: I just wondered what gas price, where you would ramp up activity in the Piceance and perhaps even in the Marcellus? Ralph Hill:

Well, the Piceance could be at a lower level. What we try to do is -- not we try, we want to manage our balance sheet, so we probably would prefer a price between $3.75 and $4.00 to ramp the activity up first in the Piceance. And because our Marcellus at this point is dry, it will be dry, our position, but also at 7 Bcf, the Piceance would go first and the Marcellus would follow closely after that once the price has gone above $4.

Unidentified Audience Member: When would you expect to complete those 25 wells in the Marcellus, and what's the timing on that?

WPX Energy, Inc. 9/5/2012 - 2:25 PM ET Speaker ID 41 Page 9 Ralph Hill:

We're basically -- as we move to the quarter, I think we're getting close to being caught up on that. Some we delay just because of the infrastructure problem, so I would estimate at the end of the third quarter we'll basically be caught up. And then after that it's just the fluctuations we've had with line pressure of bringing the wells on at the right time.

Unidentified Audience Member: Great, thanks. Ralph Hill:

Any other questions? We do appreciate the opportunity to share our time with you and tell you about WPX. We look forward to maybe seeing you one-on-one and we look forward to continuing that. Thank you very much.