Pioneer shrugs off oil price slump, adds rigs

OREANDA-NEWS. July 10, 2015. Pioneer Natural Resources added two rigs to its drilling operations this month and is sticking with a plan to add two more every month for the rest of the year, unfettered by the recent pullback in crude prices.

The US independent is adding the horizontal rigs in the Spraberry/Wolfcamp area of the Permian basin in Texas, where it has most of its operations focused. The increase in drilling activity, which will boost its 2015 capital expenditure (capex) budget by \\$350mn to \\$2.2bn, will continue "as long as the oil price outlook remains constructive," chief executive Scott Sheffield said.

Pioneer's move stands as a testimony to the resilience of the US shale industry, whose booming output over the past few years had in part resulted in the sharp fall in benchmark crude prices to near six-year lows earlier in the year. While shale producers have across the board sharply cut their capex to focus only on areas that offer the best returns, adding rigs shows that shale drilling economics can still work for some at a far weaker WTI average.

Nymex WTI crude prices have plunged 16pc since the high for the year of \\$62.58/bl touched in May, with the decline accelerating this month. Prior to this week, WTI futures had gained nearly 40pc from their low of \\$43/bl in March. Most US independent producers have budgeted an average WTI price of \\$60/bl for 2015 while finalizing their plans to step up activity.

With that \\$60 average now looking further away, investors will await guidance from companies such as Occidental, Devon and WPX, which had announced a step up in activity amid stable prices over the past two months.

Pioneer plans to add another eight horizontal rigs in the first quarter of 2016, of which six will be in the Spraberry/Wolfcamp and the remaining two in the Eagle Ford in south Texas. The ramp-up will bring the company's total horizontal rig count to 36, with 28 in the Spraberry/Wolfcamp and eight in the Eagle Ford, taking the count back to the level prior to the 2014 price collapse.

The higher count will boost output growth to more than 15pc over 2016-2018. But the impact on growth will be minimal this year, holding at its earlier guidance of about 10pc.