Pioneer Natural Resources to triple shale drilling, double output

Pioneer Natural Resources is tripling drilling in shale fields as international energy explorers five times its size recoil from losses on the U.S. oil renaissance.

Pioneer is expanding its fleet of drilling rigs in the northern part of Texas’ Spraberry field to 16 from five this quarter after striking reservoirs so rich that some wells are expected to pump as much as 1 MMbbl of crude during their lifespans. Pioneer’s wildcatting bucks the trend among bigger explorers including Royal Dutch Shell Plc that are writing down U.S. shale assets and shrinking their footprints after drilling money-losing wells.

Pioneer plans to double crude and natural gas output by the end of 2018 by exploiting deep layers of shale beneath a Texas oilfield that has been in production for more than six decades. Pioneer amassed those assets in the 1990s from international companies that didn’t foresee the shale-drilling revolution and were fleeing what they regarded as a withering oil province in favor of the Gulf of Mexico and Africa.

“The technology changed,” Timothy Dove, Pioneer’s president and COO, said in a telephone interview on March 7. “What we’re doing is going back into a large, already-discovered oilfield.”

Pioneer has risen 6.5% this year after surging 73% in 2013 as production climbed to an eight-year high and Texas crude prices averaged above $90 a barrel.

International explorers who were late to the land rush for U.S. shale fields during the past decade haven’t been able to mimic Pioneer’s success.

For Shell, the world’s second-largest oil producer by market value, the dwindling value of its U.S. shale prospects contributed to a $2.7 billion writedown of its oil and gas portfolio announced in January.

The Hague-based company said it would scale back drilling in those fields because of disappointing results. Shell’s global output dropped 1.9% last year to the lowest since 2009, according to data compiled by Bloomberg.

BP Plc announced a restructuring of its onshore U.S. business last week to improve results. That was after the London-based company’s global, full-year 2013 production tumbled 32% to the smallest in at least 15 years.

Energy companies also are contending with soaring costs for everything from rig crews to the sand used in mixtures that fracture oil-soaked rocks deep underground, industry executives including Chevron Corp. Chairman and CEO John Watson said during the IHS CERAWeek conference in Houston last week.

Escalating costs are creating a “squeeze” on the biggest oil producers that is eroding profitability, Watson said.

Pioneer’s lack of exposure to the costliest and riskiest international projects, such as LNG complexes and ultra-deepwater oil platforms, shields it from some of the pressures impacting larger peers. Pioneer’s cost to extract the equivalent of a barrel of crude declined 4.8% during the final three months of 2013 to $13.36.

Pioneer is spending about $8 million a well to drill sideways through the Spraberry field, Dove said. Some of those wells probably will gush 1 MMbbl or more before they peter out decades from now, according to a presentation published on the Irving, Texas-based company’s website on March 7.

Those wells cost four times as much as traditional, $2 million vertical wells that typically yield 140,000 to 170,000 bbl over their lifetimes, Dove said. The higher costs and risks of drilling horizontally are justified because the return on each dollar invested is so much greater, he said.

At an oil price of $95 a barrel, an $8 million, million-barrel well would yield an average of $11.88 for each $1 of initial investment, based on Bloomberg calculations. That’s 61% above the $7.36 earned per dollar spent at the midpoint production estimate for the $2 million vertical well.

Pioneer plans to drill 250 horizontal wells in the Spraberry and other nearby fields in the Permian basin that straddles the Texas-New Mexico border, Dove said. That’s in addition to 200 vertical wells planned for the area in 2013.

Pioneer is selling fields in Alaska and the Barnett shale in north Texas after quitting African exploration in 2011 and 2012 to focus on its most-promising domestic prospects.

In its 2013 annual report, Pioneer identified the Spraberry field and the Eagle Ford shale in the southern part of the state as its main growth areas. The company also produces oil, gas and byproducts such as propane in Kansas, Colorado and the Texas panhandle.

Providing useful resources, articles and writings on crude oil, other petroleum products, energy and gas. By O'Niel Petroserve Nigeria Ltd, online.

U.S. oil rigs surge to record as drilling jumps in Permian

Rigs targeting oil in the U.S. surged to a record this week as producers from Concho Resources Inc. to Pioneer Natural Resources Co. boost horizontal drilling in the Permian basin.

U.S. oil rigs jumped by 13 to 1,443, the highest level since Baker Hughes separated its oil and gas rig counts in 1987, the Houston-based company said in a weekly report posted on its website. Rigs drilling horizontally in the Texas- New Mexico formation rose by 10 to 265, the highest level since at least February 2011, while vertical rigs there gained three and the directional count added one.

“One could argue that all of the increase in the oil rig count this week was because of the Permian,” James Williams, president of WTRG Economics in London, Arkansas, said by telephone. “While it’s one of the oldest fields in the U.S., there are multiple producing formations there and companies are learning how to optimize horizontal drilling in them. The growth is evidence that they’re figuring it out.”

Hydraulic fracturing and horizontal drilling have unlocked shale deposits of oil from North Dakota to Texas, boosting crude output to the most in a quarter-century and cutting energy costs for industries from airlines to chemical plants. The increase also helped the U.S. meet 86 percent of its energy needs in the first 11 months of 2013, the highest level since 1986, Energy Information Administration data show.

Rig Output

Crude production per rig in the Permian is expected to climb to 98,000 bopd in March, up from 83,000 bopd, the Energy Information Administration, the Energy Department’s statistical arm, said in a Feb. 10 report.

Pioneer, which holds one of the largest positions in the Permian, is spending “the vast majority” of its 2014 drilling capital in northern areas of the basin such as Spraberry and Wolfcamp, Timothy Dove, the Irving, Texas-based company’s chief operating officer, said during a presentation March 4.

While Pioneer is drilling in a 300-ft-thick shale formation in Texas’s Eagle Ford play, the Permian offers shale thickness of 3,500 ft, Dove said. “So this is why this area has really substantial running room going forward,” he said.

Concho, the biggest Permian Basin operator drilling for oil, is adding four rigs throughout the year, E. Joseph Wright, the Midland, Texas-based company’s chief operating officer, said at a conference March 3.

More Growth

“When you look at our rate of growth going forward, in the last half of 2014, we’ll increase that rate of growth and on into 2015 as well,” Wright said.

U.S. oil output climbed 18,000 bopd last week to 8.08 MMbopd, EIA data show. Crude stockpiles jumped 1.43 MMbbl to 363.8 MMbbl.

West Texas Intermediate crude for April delivery rose $1.02, or 1%, to settle at $102.58/bbl on the New York Mercantile Exchange, up 12% in the past year.

U.S. gas stockpiles dropped 152 Bcf to 1.196 Tcf, EIA data show. Supplies were a record 38.8% below the five-year average and 43.2% below year-earlier levels.

Natural gas for April delivery dipped 0.9% to $4.618/MMbty on the Nymex and has risen 29% in the past year.

U.S. gas rigs jumped 10 to 345 this week, Baker Hughes said. The total rig count rose by 23 to 1,792, the highest level in more than a year.

“We may be finally be seeing some impact in the gas count from natural gas prices,” Williams said.

Iain McIntosh, Baker Hughes’s vice president for U.S. lands operations, said at a conference March 5 that the amount of time it takes to drill a gas well has fallen to less than 10 days in some cases from 40.

Rigs on land jumped by 23 this week to 1,719. Rigs in inland waters and miscellaneous rigs, which usually drill for geothermal energy, were unchanged at 18 and four, respectively. Offshore rigs, primarily in the Gulf of Mexico, were also unchanged at 55.

The count in Texas gained the most this week, up 20 to 864. Energy rigs in Canada fell by 39 to 587.

Providing useful resources, articles and writings on crude oil, other petroleum products, energy and gas. By O'Niel Petroserve Nigeria Ltd, online.