Dallas-based Pioneer Natural Resources Co. reported a 9% sequential increase in production for the fourth quarter and attributed the success to "three core liquids-rich growth assets in Texas." In light of low prices for dry gas, the company has tweaked some of its drilling plans while it continues to high-grade liquids-rich drilling.
"The company delivered another strong quarter, with production of 140,000 boe/d, an increase of 12,000 boe/d, or 9%, from the third quarter of 2011...Our three core liquids-rich growth assets in Texas, the Spraberry field, the Eagle Ford Shale and the Barnett Shale Combo, were the drivers of this significant increase," said CEO Scott Sheffield. "These three assets were also the primary contributors to Pioneer's 313% drillbit reserve replacement in 2011 at a drillbit finding and development cost of $13.83/boe."
Fourth quarter production from the Spraberry field averaged 53,000 boe/d, an increase of 7,000 boe/d from the third quarter. Production is forecasted to grow from an average of 45,000 boe/d in 2011 to 61,000-65,000 boe/d in 2012. Assuming the vertical rig count remains at 30 rigs in 2013 and 2014, and the horizontal rig count increases to 10 rigs, production is forecast to further increase to 81,000-87,000 boe/d in 2013 and 96,000-103,000 boe/d in 2014.
In the liquids-rich Eagle Ford Shale in South Texas, Pioneer and its joint venture partners are currently running 12 rigs. The company drilled 111 wells in 2011 and placed 92 wells on production. To improve the execution of its drilling and completions program and reduce costs, Pioneer is operating two company-owned fracture stimulation fleets totaling 100,000 hp. It is also utilizing a dedicated third-party fracture stimulation fleet, which began operating last April under a two-year contract.
"Owning fracture stimulation fleets continues to enhance the execution of our drilling program and provide significant cash savings versus contracting for these services at market rates," Sheffield said. "By mid-2012, our fleet capacity will reach 300,000 in total horsepower."
Pioneer plans to continue running 12 rigs in the Eagle Ford in 2012 and drill 125 wells. The 2012 drilling program will continue to focus on liquids-rich drilling, with only 15% of the wells designated to hold strategic dry gas acreage.
The original plan for 2012 called for an increase to 14 rigs on the assumption that 25% of the program would target dry gas drilling. However, in response to the current low gas price environment, the increase to 14 rigs has been delayed until 2013, Pioneer said. It is now planned that the rig count will increase to 16 rigs in 2014 and 19 rigs in 2015.
"The ramp-up is still exactly the same but pushed out one year in the face of low natural gas prices," COO Timothy Dove said during an earnings conference call.
Pioneer increased Eagle Ford production from 14,000 boe/d in the third quarter to 20,000 boe/d in the fourth quarter. It expects production to increase from an average of 12,000 boe/d in 2011 to 25,000-29,000 boe/d in 2012, 37,000-41,000 boe/d in 2013 and 47,000-53,000 boe/d in 2014.
In the liquids-rich Barnett Shale Combo play, Pioneer has built a 78,000 net acreage position, representing more than 1,000 drilling locations. The company drilled 43 wells in 2011 and placed 42 wells on production. Pioneer operated two rigs in the play for much of 2011 and plans to remain at this level through 2012. It said it expects to increase this to four rigs in 2013.
"Our returns have been compromised somewhat by low gas prices, but these two rigs will continue to drill, basically preserving leasehold and looking for a potential increase into 2013," Dove said.
Production in the fourth quarter for the Barnett Shale Combo play was 6,000 boe/d, up from 4,000 boe/d in the third quarter. Pioneer said it expects production to increase from an average of 4,000 boe/d in 2011 to 7,000-9,000 boe/d in 2012 under the current two-rig program. With the expected increase to four rigs in 2013, production is forecasted to grow to 12,000-16,000 boe/d in 2013 and 18,000-23,000 boe/d in 2014. Production is composed of 60% oil and natural gas liquids and 40% gas.
"Based on our drilling plan for 2012, which high-grades liquids-rich drilling to optimize returns in response to low gas prices, we expect the company to deliver production growth of 23-27%, compared to 2011," Sheffield said. "The capital program for 2012 totals $2.5 billion, with 86% of the spending designated for drilling in the Spraberry field, the horizontal Wolfcamp Shale, the Eagle Ford Shale and the Barnett Shale Combo."
Pioneer reported a fourth quarter net loss of $111 million (minus 93 cents/share). Without the effect of noncash derivative mark-to-market losses and other unusual items, adjusted income for the fourth quarter was $147 million after tax ($1.19/share).