Pioneer Natural Resources Co. has added two horizontal drilling rigs to its Permian Basin operations this month and plans to add on average two more every month, with its sights set on returning to a 36-rig count in the Permian and Eagle Ford Shale by early 2016 -- the same number it had running before oil prices slumped.
To finance its profitable Permian operations, the independent and partner Reliance Holding USA Inc. sold their Eagle Ford Shale (EFS) Midstream business to Enterprise Product Partners LP for $2.15 billion, a deal now completed (see Shale Daily, June 1).
After retiring about $125 million in debt, Pioneer's share of the net sale proceeds is $530 million at closing and around $500 million in one year. In addition, Pioneer should realize its $100 million share of the reduced transportation and processing fees associated with new downstream agreements with Enterprise. As well, the midstream sale should enhance its ability to export processed Eagle Ford condensate.
As important, the proceeds will translate into big production plans across the Permian holdings, said Sheffield.
"The sale of EFS Midstream will further improve our already strong balance sheet and allow us to strategically redeploy capital to our core, oil-rich Spraberry/Wolfcamp asset in the Permian Basin of West Texas," he said. "We are currently operating 12 horizontal rigs in the Spraberry/Wolfcamp, including two horizontal rigs added this month. Our strong balance sheet, combined with a strong derivatives position for 2015 and 2016, provides us with the financial firepower to ramp up drilling activity on high-return Wolfcamp B, Wolfcamp A and Lower Spraberry Shale horizontal wells during the second half of this year."
Pioneer plans to add an average of two horizontal rigs a month to the northern Spraberry/Wolfcamp through the rest of the year, "as long as the oil price outlook remains constructive," Sheffield said.
Additional drilling activity "is expected to increase the company's 2015 capital budget by approximately $350 million to $2.2 billion. Adding these 12 rigs will have minimal impact on forecasted 2015 production growth of greater than 10% due to multi-well pad drilling."
Beginning early in 2016, Pioneer plans to add eight more horizontal rigs to the Permian play, with two more rigs added in the Eagle Ford.
"This rig ramp-up will bring our total horizontal rig count to 36 rigs, 28 rigs in the Spraberry/Wolfcamp and eight rigs in the Eagle Ford Shale, which is essentially the same as our horizontal rig count prior to the oil price collapse in late 2014 and early 2015," said the CEO. "Based on this planned increase in drilling activity, we expect to deliver compound annual production growth of greater than 15% over the 2016 through 2018 period."