Pioneer adds six new rigs since July

OREANDA-NEWS. September 18, 2015. Pioneer Natural Resources has added six new drilling rigs to its operations in the Midland basin in Texas, sticking with its plan to expand operations despite a plunge in oil prices.

Solid hedges, covering 90pc of output this year and 85pc next year, a balance sheet bolstered by midstream asset sales and low production costs are making Pioneer an outlier by adding rigs at a time when almost all other independents are reducing rig counts. North American producers will reduce their capital expenditure (capex) budget by 35pc in 2015, and by another 20pc next year, UK-bank Barclays said, as they hunker down to weather the fall in oil prices to six-and-a-half year lows.

Pioneer's internal rate of return (IRR) for its Spraberry/Wolfcamp acreage in the Midland and Eagle Ford assets in south Texas, is about 45pc-60pc at current strip prices, senior vice president for investor relations Frank Hopkins said at the Imperial Capital conference today.

The additional rigs and improvement in efficiency and extraction technology will allow the company to boost output by more than 15pc from 2016 to 2018, he said. Output this year will grow by 10pc.

The company had announced adding two horizontal rigs per month on average in the northern Spraberry/Wolfcamp area from July through the first quarter of next year and another two horizontal rigs in the Eagle Ford shale in the first quarter. The ramp-up would 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 increase in drilling activity is raising the company's 2015 capex budget by \\$350mn to \\$2.2bn. The capex will be funded from a combination of operating cash flow, providing \\$1.5bn of the total, \\$700mn of cash on hand meeting the rest, he said.

Pioneer may temper its future rig addition plans as rig efficiency improves, Hopkins said, meaning the company will be able to deliver similar production growth with fewer rigs.

The company needs a capex of about \\$1.4bn-\\$1.5bn to maintain output at the current level of about 200,000 b/d of oil equivalent (boe/d), he said.

Pioneer and India's Reliance Industries in July sold their Eagle Ford shale condensate and natural gas gathering joint venture for \\$2.15bn