Pioneer raises 2016 output guidance

OREANDA-NEWS. April 26, 2016. Pioneer Natural Resources raised its 2016 output guidance on the back of stronger-than-expected output from its acreage in Texas' Permian basin.

The new growth target is set at 12pc compared with 10pc given earlier. The increase comes after first quarter output rose to 222,000 b/d of oil equivalent (boe/d) compared with a guidance of 211,000-216,000 boe/d, driven by an increase at its Spraberry/Wolfcamp area in the Permian basin. The company will maintain its existing drilling rig count of 12 in the area's northern part, where most of the operation is focused.

Pioneer will also keep its capital expenditure (capex) guidance unchanged at \\$2bn for 2016, of which \\$1.85bn is for drilling and completion (D&C), and the remaining \\$150mn on systems upgrade and field facilities. It expects to add five to 10 rigs when oil recovers to around \\$50/bl and the outlook for supply and demand fundamentals improves.

US oil and gas independents have grappled with a plunge in crude prices, to below \\$30/bl, in the first quarter, forcing them to further cut drilling plans to limit spending and preserve cash. But a few producers like Pioneer are set to navigate the downturn better than many of its peers because of lower production costs. The bulk of its output is covered through hedges, ensuring steady cash flow.

"We have the financial flexibility to prudently manage through the current commodity price downturn and quickly ramp up drilling activity when prices improve," chief executive Scott Sheffield said.

The independent is the largest acreage holder in the Spraberry/Wolfcamp area, with about 600,000 gross acres in the northern portion and 200,000 acres in the south. The large, contiguous acreage allows the producer to drill longer wells, with lateral lengths ranging from 7,500 to 13,000 ft, helping it save costs and improve output.

Drilling and completion (D&C) costs per perforated lateral foot for wells in its Wolfcamp B area in the northern portion of the acreage fell by 32pc to an average \\$890/ft in the first quarter from the earlier three months. Those continuous cost reductions are allowing Pioneer said it generates an internal rate of return of about 30pc at current strip prices from its northern Spraberry/Wolfcamp area.