What happened

Shares of WPX Energy (NYSE:WPX) catapulted 39.6% in December, according to data provided by S&P Global Market Intelligence. Propelling the energy stock was its plan to acquire privately held Felix Energy as well as initiate a dividend

So what

WPX Energy announced in mid-December that it had sealed a deal to acquire Felix Energy from private equity fund EnCap Investments for $2.5 billion. The company will issue 153 million shares to EnCap as well as pay $900 million in cash, which it intends to finance by issuing new debt.

Two people shaking hands with oil pumps in the background.

Image source: Getty Images.

The deal will substantially increase the company's footprint in the Delaware Basin, adding 1,500 locations to its drilling inventory. Further, it will boost its production by 60,000 barrels per day. That oil-rich output will immediately increase WPX Energy's earnings, cash flow, and free cash flow per share. Because of that, it will also enable the company to start paying a dividend well ahead of schedule.

Now what

Investors had been punishing oil stocks that announced acquisitions. However, they loved the price that WPX Energy is paying for Felix, a bargain at just 3.5 times its projected 2020 earnings, assuming $50 oil. Further, they also liked the fact that it initiated a dividend. Meanwhile, with oil rallying above $60 a barrel by year end, the dirt-cheap price it's paying for Felix makes the deal look even batter. Because of that, shares could have even further to run in 2020 if crude remains at its current level since that would enable WPX Energy to produce even more free cash that it could return to investors via its share repurchase program.

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