During the second quarter, Pioneer Natural Resources Co. continued transitioning from appraisal to development on its northern Spraberry/Wolfcamp acreage in the Midland Basin, and in the Eagle Ford Shale it’s pushing forward on well downspacing.

Production exceeded expectations and new horizontal wells in the Spraberry/Wolfcamp and Eagle Ford performed well, said CEO Scott Sheffield.

“We are successfully transforming the substantial resource potential we delineated in 2013 into strong production growth,” Sheffield said. “As a result, we now expect to grow production by 16%-19% this year –the upper end of our guidance range. Looking beyond 2014, we expect to continue to ramp up our horizontal rig count in the Spraberry/Wolfcamp by five to 10 rigs per year.”

Pioneer is the largest acreage holder in the Spraberry/Wolfcamp play with about 600,000 gross acres in the northern portion of the play and 200,000 gross acres in the southern Wolfcamp where it is a partner in a joint venture. The company said it believes it has more than 10 billion boe of net recoverable resource potential from horizontal drilling across its entire Spraberry/Wolfcamp acreage position based on geologic data and drilling results to date.

The company increased its horizontal rig count in the northern Spraberry/Wolfcamp area from five rigs at year-end 2013 to 16 rigs in early 2014. As a result, 93 horizontal wells are expected to be placed on production in the northern Spraberry/Wolfcamp area during 2014 with an average lateral length of 8,200 feet. About 85% of the drilling program will be Wolfcamp A, B and D interval wells. The remaining 15% will be Spraberry Shale wells (Lower Spraberry Shale, Jo Mill Shale and Middle Spraberry Shale).

Three-well pads are being utilized to drill most of the wells in this year’s program. The average drilling and completion cost for the 2014 program in the northern acreage is expected to be $8.5-9.0 million per well (reflecting an average lateral length of 8,200 feet and “science” costs). The company has recently initiated completion optimization testing in Midland and Martin counties, which includes increasing clusters per stage, increasing proppant concentration and reducing fluid volume.

Pioneer expects to place about 100 wells on production in the southern Wolfcamp joint venture area during 2014 with an average lateral length of 9,400 feet. Three-well pads are being utilized to drill substantially all of the wells in the 2014 program. The 2014 drilling program is focused on the higher-return areas in northern Upton and Reagan counties, with about two-thirds of the wells being completed in the Wolfcamp B interval and the remainder being a mix of Wolfcamp A, C and D interval wells.

The company’s initial Wolfcamp D interval well in Upton County (University 3-19 #31H) was placed on production in the second quarter, with a peak initial 24-hour production rate of 2,103 boe/d and 68% oil content. The lateral length of this well was 9,927 feet. Three additional Wolfcamp D interval wells are planned in the second half of the year. The average drilling and completion cost for the 2014 program in the joint venture area is expected to be $8.0 million per well.

For 2014, Pioneer expects to place 193 horizontal wells and 200 vertical wells on production in the Spraberry/Wolfcamp area. As a result, production is forecasted to be 96,000-100,000 boe/d in 2014, an increase of 22% to 27% compared to 2013 (narrowed from the company’s earlier range of 95,000-100,000 boe/d.

“Pioneer has made important strides in accelerating its growth plans,” Wells Fargo Securities analysts said in a note Tuesday. “As the horizontal Wolfcamp ramps, we see growth accelerating into 2014 and horizontal delineation provides a catalyst for [the company’s] shares. Our ‘outperform’ rating on Pioneer shares primarily reflects our positive view on optionality represented by Pioneer’s Permian asset.”

Meanwhile in South Texas in the liquids-rich Eagle Ford, further downspacing — from the previous transition from 1,000 feet to 500 — and staggered laterals testing to 175 feet between staggered wells is under way in areas where the 500-foot spacing was successful. Some areas will include testing of the Lower Eagle Ford Shale interval only, while others will include a combination of Lower and Upper targets, Pioneer said. “Early results from this testing continue to be encouraging. The potential exists to add 300-400 Eagle Ford Shale drilling locations from this program.”

Pioneer is utilizing a two-string casing design instead of a three-string design in most of its wells in the liquids-rich area of the Eagle Ford Shale. The change is lowering drilling costs by $750,000 to $1.0 million per well, primarily as a result of reducing drilling days and casing costs on each well, the company said.

The company continues to improve its Eagle Ford completion design by increasing the pounds of white sand proppant pumped per foot, increasing the barrels of fracture stimulation fluid pumped per minute in each cluster, reducing cluster spacing and utilizing combinations of these. The optimization program is increasing estimated ultimate recoveries by 20-30%, which more than offsets the increase in drilling and completion capital.

Second quarter production from the Eagle Ford Shale averaged a record 47,000 boe/d. Thirty-one wells were placed on production during the quarter. For 2014, the company expects to place 125 liquids-rich wells on production in the Eagle Ford (63 wells in the first half of 2014 and 62 wells in the second half). Most of these wells will be drilled utilizing three-well and four-well pads. The 2014 program reflects longer lateral lengths and larger fracture stimulations compared to last year. Full-year production is forecasted to range from 46,000-49,000 boe/d, an increase of 22-30%, compared to 2013 (narrowed from the earlier guidance of 45,000-49,000 boe/d).

Overall, Pioneer this year plans to spend $3 billion for drilling and $300 million for vertical integration and the construction of new field and office buildings. Spending falls out as:

The 2014 capital budget is expected to be funded from forecasted operating cash flow of $2.5 billion (assuming commodity prices of $100/bbl for oil and $4.50/ Mcf for gas), cash on the balance sheet and the proceeds from divestitures.

Sales volumes from continuing operations for the second quarter averaged 183,000 boe/d (excluding Alaska and Barnett Shale production, which is reflected in discontinued operations). Oil sales averaged 80,000 b/d, natural gas liquids (NGL) sales averaged 41,000 b/d and gas sales averaged 370 MMcf/d.

Company-wide production is expected to average 181,000-186,000 boe/d during the third quarter.

Second quarter net income was $1 million (1 cent/share). Excluding noncash derivative mark-to-market losses and other unusual items, adjusted income for was $195 million after tax ($1.35/share). Second quarter earnings included noncash mark-to-market losses on derivatives of $137 million after tax (94 cents/share) and a net loss of $57 million after tax (40 cents/share) related to discontinued operations associated with Alaska and Barnett Shale results. Net income for the year-ago quarter was $337 million ($2.40/share).