Pioneer: Up to 2 years for US shale rebound

OREANDA-NEWS. April 27, 2016. The US shale industry will take up to two years to get output growing again, Pioneer Natural Resources said, implying that the recent recovery in prices isn't enough to rework operation plans.

"We just can't become a big shale swing producer like Opec thinks because of the combination of leverage, the amount of people we have to get back to work," chief executive Scott Sheffield said in an earnings call.

Sheffield's comments echo those by Schlumberger and Halliburton, the world's top two oilfield services providers, who continue to make thousands of job cuts amid expectations of continuing challenges in coming months. The plunge in crude prices, to below \\$30/bl in the first quarter, has made producers such as Whiting Petroleum cut their capital expenditure (capex) by as much as 80pc from a year earlier to conserve cash.

Pioneer Natural Resources, one of the most resilient US shale producers because of a strong hedge book and low cost of production, will only add back rigs if prices recover further. It may add between five to 10 rigs if 2017 strip prices return to \\$50/bl, from about \\$47/bl now, and inventories start to drop.

The first quarter may have been the "low point" as prices have strengthened somewhat in the second, chief financial officer Rich Dealy said. "So hopefully we have seen the bottom and future quarters will show better realizations," he said.

Until prices improve such that Pioneer is comfortable adding back rigs, the producer will focus on lowering costs further and increasing its hedge coverage on expected output in 2017, both of which will improve cash flow.

The independent is doing "acreage swaps and other trades" to configure its existing oil leases, in the Spraberry/Wolfcamp area, its key producing acreage in the Permian basin in Texas. The move is part of its plan to drill longer lateral wells of up to 13,000 ft to bring costs down. Continuous cost reductions are allowing Pioneer generate an internal rate of return of about 30pc at current strip prices from its northern Spraberry/Wolfcamp area.

The producer currently has 85pc of its 2016 oil output covered and 50pc in 2017, up from 20pc earlier in the year. It has hedges for 70pc of its 2016 natural gas output and 25pc for 2017, versus no coverage earlier in the year. It made a net derivatives gain of \\$43mn in the first quarter compared with \\$241mn in the year earlier.

Pioneer posted a loss of \\$267mn for the first quarter compared with a loss of \\$78mn a year earlier.