Pioneer Natural Resources Co. is touting a net recovery potential of more than 2 Tcf from yet another North American natural gas shale play, this time in Colorado’s Raton Basin, which is expected to contribute to the Dallas-based independent’s growing output in the coming years.

The Pierre Shale, which is located in the southeastern corner of Colorado, has about 21 Tcf in place, said Pioneer. It could provide the producer with proved reserves topping 70 Bcf by the end of this year and more than 200 Bcf by the end of 2010. The independent had 18 Bcf of proved reserves at year-end 2007.

Based on the “expected impact of new initiatives” to recover reserves in the Pierre Shale, as well as the Spraberry field in the Permian Basin, Pioneer said its oil and gas resources (proved, possible, probable) already have nearly doubled, growing by 1.1 billion boe to 2.8 billion boe. The resources include year-end 2007 estimated proved reserves of 964 million boe and potential reserves of 1.9 billion boe.

Pioneer raised its production guidance through 2011 to 14% from 12%.

“With extensive infrastructure in place and no incremental entry costs, the additional potential on our resource-rich Permian and Raton Basin acreage is expected to generate strong returns, enhance organic reserve growth and add significant net asset value,” said CEO Scott Sheffield. “This new resource potential further expands our inventory of low-risk drilling locations supporting consistent, repeatable production growth for years to come.”

The coalbed methane-rich Pierre Shale was identified by Pioneer about 18 months ago, covering 134,000 acres of the 318,000 acres leased in the Raton Basin. Fifteen of the 175 wells to be drilled in the Raton this year will target the Pierre play. Already, five wells in the Pierre are producing 2 MMcf/d, and five more wells are in early stages of completion and production to test the play’s boundaries.

Up to 1,200 drilling locations, based on 80-acre spacing, have been identified, Pioneer said. Wells will be drilled from new and existing pads, and gas will be produced through Pioneer’s existing coalbed methane facilities. Now the producer plans to assess the potential upside from horizontal drilling, which is already under way, as well as the potential to produce from shallower shale intervals. The Pierre Shale wells each are expected to cost on average of $1 million, with another $200,000 per fracturing interval. Average finding and development costs were estimated at $10-15/boe, generating an average before-tax internal return rate of 40% if gas prices are $8/Mcf.

Pioneer is the largest driller and producer in the Spraberry field, with 869,000 gross acres. The field is considered by the Energy Information Administration to be the fifth largest oilfield and 15th largest gas field in the United States, and Pioneer has 5,300 active wells and 16 rigs currently operating. Because of rising commodity prices in 2007 Pioneer initiated a study to update the field’s metrics. The study revealed:

Pioneer had recorded 481 million boe of net proved reserves in Spraberry at the end of 2007. However, based on the study, the field may hold 1 billion boe of additional net resource potential, the producer said.

Combined, the Pierre Shale and the Spraberry field “will begin to address the ‘execution’ issues the marketplace has had with the company and help close the valuation gap and the near 30% year-over-year underperformance compared to its large [capital] peer group,” wrote Rehan Rashid and Greg Bordelon, energy analysts with Friedman, Billings, Ramsey & Co. Inc.

Spraberry’s potential, they wrote, was “an open secret.” The Pierre Shale discovery “adds to the sizzle.”

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