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Pioneer Strikes Wolfcamp JV, Abandons Barnett Sale
Pioneer Natural Resources Co. has signed an agreement with Sinochem Petroleum USA LLC, a U.S. subsidiary of China’s Sinochem Group, to sell 40% of its interest in 207,000 net acres leased by the Pioneer in the horizontal Wolfcamp Shale in the southern portion of the Spraberry Trend Area Field for $1.7 billion.
At closing, Sinochem will pay $500 million in cash to Pioneer before adjustments and will pay the remaining $1.2 billion by carrying a portion of Pioneer’s share of future drilling and facilities costs.
Wells Fargo Securities analyst Gordon Douthat said in a note Wednesday that the deal values the acreage at about $17,000 per acre. “This is ahead of the $12,000/acre that we had incorporated into our NAV [net asset value] estimate, and we believe Street expectations were in the $10,000-15,000/acre range,” Douthat wrote.
“We are very excited to work with Sinochem, a global energy and chemicals leader, in the southern horizontal Wolfcamp Shale area…” said Pioneer CEO Scott Sheffield. Pioneer is said to be the largest acreage holder in the horizontal Wolfcamp (see Shale Daily, Nov. 5, 2012).
The transaction is expected to close during the second quarter, subject to customary approvals. Sinochem will acquire about 82,800 net acres of leasehold held by Pioneer for all Wolfcamp depths and deeper horizons. Pioneer retains 60% of its interest in the Wolfcamp depths and deeper horizons, with Sinochem receiving 40% of Pioneer’s interest.
Pioneer will continue as operator and will conduct all leasing, drilling, completion, operations and marketing activities in the joint interest area, which covers portions of Upton, Reagan, Irion, Crockett and Tom Green counties in Texas. Pioneer retains its current working interests in all horizons shallower than the Wolfcamp horizon.
In addition to funding its own drilling obligations for the horizontal Wolfcamp, Sinochem has agreed to fund 75% of Pioneer’s portion of drilling and facilities costs after closing until the $1.2 billion of drilling carry is fully utilized. Pioneer has six years to utilize the drilling carry, subject to extension under certain circumstances.
At closing, Sinochem will pay its 40% share of net expenditures in the joint interest area from the Dec. 1, 2012 effective date to the closing date. Pioneer and Sinochem have agreed to a development plan that forecasts the drilling of 86 horizontal Wolfcamp Shale wells during 2013, increasing to 120 wells in 2014 and 165 wells in 2015.
To the extent Sinochem elects to participate in any vertical wells that are drilled in the joint interest area after the effective date, Sinochem will receive its share of production and costs from the Wolfcamp and deeper horizons based on the anticipated reserve contribution from the Wolfcamp and deeper intervals relative to anticipated reserves from all completed intervals.
Pioneer has successfully drilled and completed 39 horizontal wells in the Wolfcamp joint interest area through Dec. 31. Of these 39 wells, 22 were on production and four additional wells were flowing back. Of the 22 wells on production, 20 were completed in the B interval and two were completed in the A interval. Pioneer’s net horizontal Wolfcamp Shale production in the joint interest area averaged 2,000 boe/d in 2012, with a year-end exit rate of about 5,000 boe/d.
Separately, Pioneer which last September said it was pulling up stakes in the Barnett Shale to focus on greener pastures, on Wednesday said it was abandoning its Barnett asset sale effort after failing to receive a suitable offer.
Several bids were received in December but none were representative of the value Pioneer places on these properties so the company is keeping them, the Dallas-based producer said. Last September the company said a Barnett sale would allow it to allocate capital to higher-return projects (see Shale Daily, Sept. 7, 2012).
Pioneer holds about 155,000 gross acres in the play, of which about two-thirds are in the liquids-rich Barnett Shale Combo play. The remaining one-third is in the dry gas area. Production in the fourth quarter was about 9,000 boe/d, of which about 55% was oil and natural gas liquids and 45% was dry gas. Pioneer is operating one rig in the Combo Play and plans to continue to focus its drilling activities in this area.
“We view this development as somewhat negative given acreage holding requirements that we estimate would require a four-rig program to hold acreage, likely more capital than the company would like to spend in the play,” Douthat wrote.
As a result of the planned divestiture, the Barnett Shale properties were reclassified to discontinued operations in the third quarter. The financial and operating results for these properties will be reclassified back to continuing operations beginning in the fourth quarter of 2012.
Drilling in the Barnett is off by 41% from a year ago, according to NGI’s Shale Daily Unconventional Rig Count as of Jan. 25.
Pioneer’s plans for the Barnett Shale properties are to be discussed during the company’s quarterly earnings conference call on Feb. 14.
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