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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Scott D. Sheffield, the just-retired chairman and chief executive of Pioneer Natural Resources Company (NYSE:PXD) (Dallas, Texas), went out with a bang. His leadership of Pioneer ended at the end of 2016. During the year, Pioneer's stock rose roughly 42%, about even with many of its peer independent Oil & Gas producers. But where Pioneer stood apart from its peers, at least in the third quarter of 2016, was its profitability: Its net earnings of $22 million compared favorably to its peer independent producers, who reported quarterly net losses ranging from $144 million (Noble Energy Incorporated) to $190 million (EOG Resources Incorporated) to $607 million (Apache Corporation) to $830 million (Anadarko Petroleum Corporation) to $1.6 billion (Devon Energy Corporation). Pioneer's third-quarter results benefitted from non-recurring items.
Industrial Info's Oil & Gas experts will discuss market trends and spending outlook for that industry at Industrial Info's upcoming Market Outlook & Networking Event at the George R. Brown Convention Center in Houston, Texas, on January 17, 2017. The event is complimentary but space is limited, so be sure to RSVP today!
Many of Pioneer's peers spent 2016 selling assets to shore up their balance sheets. But Pioneer was a buyer last year, paying about $429 million to acquire 28,000 acres in the Midland Basin in West Texas from Devon Energy. That deepened the Dallas-based producer presence in West Texas. Pioneer is the largest acreage holder in West Texas' Spraberry/Wolfcamp play. For more on that transaction, see June 22, 2016, article -- Pioneer Acquisition Signals Deepened Commitment to Spraberry/Wolfcamp Play.
Click on the image at right to see a map of West Texas' Spraberry/Wolfcamp play.
That acreage acquisition was funded by Pioneer's sale of $1 billion of midstream assets in the Eagle Ford Shale, which was announced in mid-2015 but closed in July 2016. In announcing that sale, Pioneer said it would use its proceeds to expand its operations in West Texas, an area it knows well. For more on Pioneer's disposal of its Eagle Ford assets, see January 22, 2016, article -- As Crude-oil Price Rout Deepens, Pioneer Maintains its Bright Outlook.
This article is part of the "Then & Now" series that looks at what Oil & Gas Producers have done since late-2014 to become more competitive in a low-price environment. To see our first article in this series, see January 4, 2017, article -- Then & Now: Continental Resources Cuts Costs, Boosts Outlook, but Losses Grow.
"Sticking to your knitting," or doing only what you know well, is a time-honored formula for success in almost any industry. Though derided as hopelessly boring by some of the more adventurous, it nonetheless has the potential to limit losses from forays into new, exciting and sometimes treacherous markets.
Pioneer spent 2016 sticking to its knitting. After divesting its peripheral Eagle Ford business, it focused on the Permian Basin, where it increased production, lowered production costs and strengthened its balance sheet by redeeming debt.
During the third quarter of 2016, Pioneer brought 46 horizontal wells into production in the Spraberry/Wolfcamp play, and those wells exhibited what the company characterized as "strong performance." Many of those new wells benefitted from what the company called its "Version 3.0 completion-optimization program," which outperformed its earlier Version 2.0 completion-optimization efforts.
Since 2013, Pioneer has been experimenting with ways to optimize well production by combining longer laterals with different stage lengths, cluster spacing, fluid volumes and proppant concentrations. Pioneer said its initial fracture stimulation design (Version 1.0) consisted of proppant concentrations of 1,000 pounds per foot, fluid concentrations of 30 barrels per foot, cluster spacing of 60 feet and stage spacing of 240 feet.
Version 2.0, deployed in mid-2015, consisted of higher proppant concentrations of 1,400 pounds per foot, larger fluid concentrations of 36 barrels per foot, tighter cluster spacing of 30 feet and shorter stage spacing of 150 feet. The Version 2.0 optimization increased the cost of completing a well by about $500,000, but the added cost was offset by added production, which surged between 25% and 35% depending on the site. Last year, the company tested Version 3.0 of its well-optimization program, which included even larger proppant concentrations (up to 1,700 pounds per foot), larger fluid concentrations (up to 50 barrels per foot), tighter cluster spacing (down to 15 feet) and shorter stage spacing (down to 100 feet). Version 3.0 optimization techniques cost an additional $500,000 to $1 million per well, compared with Version 2.0, but the company likes what it saw and decided to expand its Version 3.0 well optimization efforts.
The Version 2.0 and 3.0 well-optimization efforts will enable Pioneer to deliver internal rates of return of 50% to 65% in the northern Spraberry/Wolfcamp area, assuming late-October crude-oil strip commodity prices, the company said.
Improving well productivity allowed Pioneer to increase its full-year production growth estimate in the Spraberry/Wolfcamp play to 38% over 2015 production. Earlier in 2016, the company predicted production there would grow 34% over 2015 levels. The company estimated full-year production from all of its properties would increase 14% over 2015. Strong production growth in the Spraberry/Wolfcamp area partially offset production declines in the Eagle Ford Shale (about 25%) and a 10% production drop in the other areas in which Pioneer operates.
Pioneer's hydrocarbon production has doubled over the last six years, rising steadily from 119,597 barrels of oil equivalent per day (BOE/d) during the third quarter of 2011 to 239,000 BOE in the recently completed quarter. In the third quarter of 2016, roughly 75% of its overall production, about 179,000 BOE/d, came from the Spraberry/Wolfcamp region. Roughly 72% of its production in that play came from horizontal wells. The company predicted production in that area would increase to 185,000 to 190,000 BOE/d in the fourth quarter of 2016.
Click on the image at right to see a graphic showing Pioneer's rising hydrocarbon production.
In its third-quarter earnings statement, Pioneer reported "significant capital efficiency gains" in the Spraberry/Wolfcamp, where it enhanced well productivity and drove down the cost to drill laterals. Overall, its cost to produce each barrel of oil equivalent (BOE) fell 32% in the third quarter of 2016 compared with the year-earlier period. In that statement, Pioneer also said its "contiguous acreage position and substantial resource potential (in the Spraberry/Wolfcamp play) allow for decades of drilling horizontal wells with lateral lengths ranging from 7,500 feet to 14,000 feet."
Presiding over his last quarterly earnings release as chief executive of Pioneer, Sheffield said: "The company delivered another great quarter, with solid earnings, production above the top end of our third-quarter guidance range and continued impressive horizontal well performance in the Spraberry/Wolfcamp. Our strong financial position and improving capital efficiency are allowing us to continue to drill high-return wells, grow production, and bring forward the inherent net asset value associated with this world-class asset during a period of relatively low commodity prices."
He added Pioneer was "on a trajectory to deliver compound annual production and cash flow growth through 2020 of approximately 15% and 25%, respectively, while maintaining a net debt-to-operating cash flow ratio below 1.0 times, assuming late-October (crude oil futures) strip prices. We also expect to spend within cash flow in 2018, assuming an oil price of approximately $55 per barrel."
"Pioneer has grown through continuous improvement, by hitting singles and not trying to swing for the fences," said Jesus Davis, Industrial Info's vice president of research for the Oil & Gas Production, Pipelines and Terminals industries. "Hitting singles and doubles may not be as exciting as hitting home runs, but have you ever noticed that home-run hitters tend to strike out more than anyone else?"
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com/.
Industrial Info's Oil & Gas experts will discuss market trends and spending outlook for that industry at Industrial Info's upcoming Market Outlook & Networking Event at the George R. Brown Convention Center in Houston, Texas, on January 17, 2017. The event is complimentary but space is limited, so be sure to RSVP today!
Many of Pioneer's peers spent 2016 selling assets to shore up their balance sheets. But Pioneer was a buyer last year, paying about $429 million to acquire 28,000 acres in the Midland Basin in West Texas from Devon Energy. That deepened the Dallas-based producer presence in West Texas. Pioneer is the largest acreage holder in West Texas' Spraberry/Wolfcamp play. For more on that transaction, see June 22, 2016, article -- Pioneer Acquisition Signals Deepened Commitment to Spraberry/Wolfcamp Play.
Click on the image at right to see a map of West Texas' Spraberry/Wolfcamp play.That acreage acquisition was funded by Pioneer's sale of $1 billion of midstream assets in the Eagle Ford Shale, which was announced in mid-2015 but closed in July 2016. In announcing that sale, Pioneer said it would use its proceeds to expand its operations in West Texas, an area it knows well. For more on Pioneer's disposal of its Eagle Ford assets, see January 22, 2016, article -- As Crude-oil Price Rout Deepens, Pioneer Maintains its Bright Outlook.
This article is part of the "Then & Now" series that looks at what Oil & Gas Producers have done since late-2014 to become more competitive in a low-price environment. To see our first article in this series, see January 4, 2017, article -- Then & Now: Continental Resources Cuts Costs, Boosts Outlook, but Losses Grow.
"Sticking to your knitting," or doing only what you know well, is a time-honored formula for success in almost any industry. Though derided as hopelessly boring by some of the more adventurous, it nonetheless has the potential to limit losses from forays into new, exciting and sometimes treacherous markets.
Pioneer spent 2016 sticking to its knitting. After divesting its peripheral Eagle Ford business, it focused on the Permian Basin, where it increased production, lowered production costs and strengthened its balance sheet by redeeming debt.
During the third quarter of 2016, Pioneer brought 46 horizontal wells into production in the Spraberry/Wolfcamp play, and those wells exhibited what the company characterized as "strong performance." Many of those new wells benefitted from what the company called its "Version 3.0 completion-optimization program," which outperformed its earlier Version 2.0 completion-optimization efforts.
Since 2013, Pioneer has been experimenting with ways to optimize well production by combining longer laterals with different stage lengths, cluster spacing, fluid volumes and proppant concentrations. Pioneer said its initial fracture stimulation design (Version 1.0) consisted of proppant concentrations of 1,000 pounds per foot, fluid concentrations of 30 barrels per foot, cluster spacing of 60 feet and stage spacing of 240 feet.
Version 2.0, deployed in mid-2015, consisted of higher proppant concentrations of 1,400 pounds per foot, larger fluid concentrations of 36 barrels per foot, tighter cluster spacing of 30 feet and shorter stage spacing of 150 feet. The Version 2.0 optimization increased the cost of completing a well by about $500,000, but the added cost was offset by added production, which surged between 25% and 35% depending on the site. Last year, the company tested Version 3.0 of its well-optimization program, which included even larger proppant concentrations (up to 1,700 pounds per foot), larger fluid concentrations (up to 50 barrels per foot), tighter cluster spacing (down to 15 feet) and shorter stage spacing (down to 100 feet). Version 3.0 optimization techniques cost an additional $500,000 to $1 million per well, compared with Version 2.0, but the company likes what it saw and decided to expand its Version 3.0 well optimization efforts.
The Version 2.0 and 3.0 well-optimization efforts will enable Pioneer to deliver internal rates of return of 50% to 65% in the northern Spraberry/Wolfcamp area, assuming late-October crude-oil strip commodity prices, the company said.
Improving well productivity allowed Pioneer to increase its full-year production growth estimate in the Spraberry/Wolfcamp play to 38% over 2015 production. Earlier in 2016, the company predicted production there would grow 34% over 2015 levels. The company estimated full-year production from all of its properties would increase 14% over 2015. Strong production growth in the Spraberry/Wolfcamp area partially offset production declines in the Eagle Ford Shale (about 25%) and a 10% production drop in the other areas in which Pioneer operates.
Pioneer's hydrocarbon production has doubled over the last six years, rising steadily from 119,597 barrels of oil equivalent per day (BOE/d) during the third quarter of 2011 to 239,000 BOE in the recently completed quarter. In the third quarter of 2016, roughly 75% of its overall production, about 179,000 BOE/d, came from the Spraberry/Wolfcamp region. Roughly 72% of its production in that play came from horizontal wells. The company predicted production in that area would increase to 185,000 to 190,000 BOE/d in the fourth quarter of 2016.
Click on the image at right to see a graphic showing Pioneer's rising hydrocarbon production.In its third-quarter earnings statement, Pioneer reported "significant capital efficiency gains" in the Spraberry/Wolfcamp, where it enhanced well productivity and drove down the cost to drill laterals. Overall, its cost to produce each barrel of oil equivalent (BOE) fell 32% in the third quarter of 2016 compared with the year-earlier period. In that statement, Pioneer also said its "contiguous acreage position and substantial resource potential (in the Spraberry/Wolfcamp play) allow for decades of drilling horizontal wells with lateral lengths ranging from 7,500 feet to 14,000 feet."
Presiding over his last quarterly earnings release as chief executive of Pioneer, Sheffield said: "The company delivered another great quarter, with solid earnings, production above the top end of our third-quarter guidance range and continued impressive horizontal well performance in the Spraberry/Wolfcamp. Our strong financial position and improving capital efficiency are allowing us to continue to drill high-return wells, grow production, and bring forward the inherent net asset value associated with this world-class asset during a period of relatively low commodity prices."
He added Pioneer was "on a trajectory to deliver compound annual production and cash flow growth through 2020 of approximately 15% and 25%, respectively, while maintaining a net debt-to-operating cash flow ratio below 1.0 times, assuming late-October (crude oil futures) strip prices. We also expect to spend within cash flow in 2018, assuming an oil price of approximately $55 per barrel."
"Pioneer has grown through continuous improvement, by hitting singles and not trying to swing for the fences," said Jesus Davis, Industrial Info's vice president of research for the Oil & Gas Production, Pipelines and Terminals industries. "Hitting singles and doubles may not be as exciting as hitting home runs, but have you ever noticed that home-run hitters tend to strike out more than anyone else?"
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com/.
