Pioneer adds hedges, meets Q2 output guidance

OREANDA-NEWS. July 24, 2015. Pioneer Natural Resources added more hedges to cushion its oil and gas output from future price swings as the US independent largely met its output guidance for the second quarter.

Pioneer is so far a standout among producers in adding new hedges since US crude futures dropped nearly 20pc from the peak in May. Many other well-hedged companies like Devon and Oasis Petroleum, whose positions roll off later this, have so far shied away from taking on large fresh covers because of the unsure market outlook.

Pioneer's second-quarter output touched 197,000 b/d of oil equivalent (boe/d), marginally below the 198,000-203,000 boe/d guidance given previously, but 7.7pc above the year-earlier level of 183,000 boe/d. The company reported 194,000 boe/d in the first quarter.

For the full year, the company is sticking with its guidance of 10pc growth, with the "nominal growth" in its acreage in the Eagle Ford basin in Texas offset by a higher than expected increase in the Spraberry/Wolfcamp area in the Permian basin, also in Texas.

"The reduction in the Eagle Ford shale growth rate is primarily due to the delays in placing wells on production and performance issues during the first half of 2015," the company said. "The increase in the Spraberry/Wolfcamp growth rate reflects the continuing strong performance of the horizontal drilling program."

Pioneer entered into new collar contracts for its expected oil output in 2016. It had 100,514 b/d covered for next year at a Nymex WTI ceiling price of \\$77.21/bl and a floor of \\$66.92/bl. As of 4 May, it had 83,000 b/d of expected 2016 output covered at a ceiling of \\$78.47/bl and a floor of \\$68.38/bl. It also added 15,000 b/d of expected 2017 output at a ceiling of \\$73.01/bl and a floor of \\$65/bl. There were no hedges for 2017 output in its earlier output given on 4 May.

For most of 2015, Pioneer has about 82,000 b/d covered under swaps contracts at a WTI price of \\$71.81/bl, and only about 15,000 b/d under collar contracts, at a ceiling of \\$97.69/bl and a floor of \\$82.97/bl. It doesn't have any swaps contracts for 2016 or 2017.

Earlier this month, Pioneer also said it added two rigs to its drilling operations and is sticking with a plan to add two more every month for the rest of the year, pointing to the resilience of the US shale industry.

The independent is adding the horizontal rigs in the Spraberry/Wolfcamp area, where it has most of its operations focused. The increase in drilling activity, will boost its 2015 capital expenditure budget by \\$350mn to \\$2.2bn.

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. 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.