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Texas Freeze Slams Pioneer; Another Wintry Blast On Its Way

A sustained blast of icy weather across Texas last week put a halt to exploration and production (E&P) activity in the Permian Basin, Barnett and Eagle Ford shales, with Pioneer Natural Resources Co. indicating it could be weeks before the full impact is determined.

The day before Thanksgiving, Pioneer said wintry conditions "significantly" impacted production and drilling operations, and in particular its Permian Basin operations in the Spraberry/Wolfcamp plays.

"The Spraberry/Wolfcamp area has been especially hard hit as heavy icing and low temperatures have resulted in extensive power outages, facilities freeze-ups, trucking curtailments and limited access to production and drilling facilities," management said. "An extensive recovery period is expected, and it is likely to be a few weeks before the full impact of this event can be determined."

The unforeseen severe weather event will impact quarterly performance, with updated guidance expected once the weather-related downtime and associated repairs in the areas affected are determined, the Dallas operator said.

"Considering the issuance of a press release, we believe the magnitude of the 4Q2013 production miss could be greater than expected," said Topeka Capital Markets analyst Gabriele Sorbara. Pioneer had forecast it would produce 179,000-184,000 boe/d during the final three months, but output may be at the low end of guidance, which would obscure growth from the horizontal operations ongoing in the Spraberry/Wolfcamp, the analyst said.

Pioneer is "asset rich," but "we do not think shares can outperform until its horizontal activity in the Midland Basin can translate into consistent production growth, an event that we expect in mid-to-late 2014," Sorbara said.

The impact to a producer the size of Pioneer can't be overstated. The operator's E.T. O'Daniel well in the Wolfcamp in Midland County recently set a basin-wide record with a 24-hour initial production rate of 3,156 boe/d, 69% oil and the highest ever for any interval in the entire Midland Basin to date (see Shale Daily,Nov. 14).

Other energy analysts said Pioneer's announcement may have been the first, but the anticipated production forecasts for several operators probably will be revised for the final three months of the year.

Permian-weighted producers include Concho Resources Inc., Cimarex Energy Co., Energen Resources Corp., Laredo Holdings Inc., Athlon Energy Inc., Approach Resources Inc. and Diamondback Energy Inc., as well as super independents Apache Corp. and Anadarko Petroleum Corp.

The winter weather likely will impact all Permian operators' 4Q2013 reports but it may take time to fully quantify how big the hit will be, said Wells Fargo analyst Gordon Douthat.

"Extremely cold temperatures caused power outages, potentially disrupted trucking of crude on icy roads, and temporarily constrained throughput at some of the regional gas plants," according to Tudor, Pickering, Holt & Co. analysts. "While we have not talked to all of our coverage companies yet, it generally looks like production may be down a couple percent versus previous expectation in the quarter."

Another icy blast is heading south from Canada and should move into the Texas Panhandle late Wednesday, according to weather forecasters. On Thursday the high in Midland, TX, is forecast at 57 with a low of 30, but by Friday, the thermometer is forecast to only reach 37, with a low of 23.

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