DALLAS–(BUSINESS WIRE)–Pioneer Natural Resources Company (NYSE:PXD) (“Pioneer” or “the Company”) today reported financial and operating results for the quarter ended December 31, 2016, and announced the Company’s capital program for 2017.
Pioneer reported a fourth quarter net loss attributable to common stockholders of $44 million, or $0.26 per diluted share. Noncash mark-to-market derivative losses of $142 million after tax were offset by an income tax benefit attributable to tax credits for research and experimental expenditures related to horizontal drilling and completion innovations of $13 million, resulting in adjusted income (income adjusted for noncash mark-to-market derivative losses and unusual items) for the fourth quarter of $85 million after tax, or $0.49 per diluted share.
Fourth quarter, full-year 2016 and other recent highlights included:
- producing 242 thousand barrels oil equivalent per day (MBOEPD), of which 59% was oil; quarterly production grew by 3 MBOEPD compared to the third quarter of 2016, and was at the top end of Pioneer’s fourth quarter production guidance range of 237 MBOEPD to 242 MBOEPD; the seventh consecutive quarter of production growth since the oil price collapse in late 2014;
- producing 234 MBOEPD in 2016, an increase of 30 MBOEPD, or 15%, from 2015; oil production increased by 28 thousand barrels of oil per day (MBPD), or 27%, from 2015; oil production was 57% of Pioneer’s total 2016 production compared to 52% in 2015;
- fourth quarter and full-year 2016 production growth was driven by the Company’s Spraberry/Wolfcamp horizontal drilling program; total Spraberry/Wolfcamp production increased 36% year-over-year, with oil output increasing 42%;
- reducing production costs per barrel oil equivalent (BOE) by 29% in 2016 compared to 2015; decrease driven by cost reduction initiatives and growth of low-cost Spraberry/Wolfcamp horizontal production;
- delivering 232% drillbit reserve replacement in 2016 by adding proved reserves of 205 million barrels oil equivalent (MMBOE) from discoveries, extensions and technical revisions of previous estimates at a drillbit finding and development cost of $9.59 per BOE (excludes negative price revisions of 58 MMBOE and net proved reserves added from acquisitions and divestitures of 3 MMBOE); the Company’s proved developed finding and development cost was $9.11 per BOE, reflecting the addition of proved developed reserves totaling 213 MMBOE from (i) discoveries and extensions placed on production during 2016, (ii) transfers from proved undeveloped reserves at year-end 2015 and (iii) technical revisions of previous estimates for proved developed reserves during 2016 (excludes negative price revisions);
- protecting 2016 cash flow and margins through attractive oil and gas derivative positions that provided incremental cash receipts of $680 million;
- maintaining a strong balance sheet with cash on hand at year end of $3 billion (includes liquid investments); net debt to 2016 operating cash flow at year end was 0.2 times and net debt to book capitalization was 2%;
- increasing the northern Spraberry/Wolfcamp horizontal rig count from 12 rigs to 17 rigs during the fourth quarter, as expected;
- placing 66 horizontal wells on production in the Spraberry/Wolfcamp during the fourth quarter, as expected, with continuing strong performance; 38 wells benefited from Pioneer’s Version 3.0 completion optimization design; Version 3.0 wells are continuing to outperform earlier wells that utilized the Version 2.0 completion optimization design;
- continuing to realize significant capital efficiency gains in the Spraberry/Wolfcamp where the Company’s completion optimization program and the extension of lateral lengths are enhancing well productivity, while drilling and completion efficiency gains and cost reduction initiatives are driving down the cost per lateral foot to drill and complete wells;
- signing an agreement with the City of Midland to upgrade the City’s wastewater treatment plant in return for a dedicated long-term supply of water from the plant; and
- exporting 525,000 barrels of Permian oil during the fourth quarter; expect to export two 525,000-barrel Permian oil cargoes to Asia during the first quarter.
Pioneer’s 2017 Plan and Capital Program is summarized below:
- planning to operate 18 horizontal rigs in the Spraberry/Wolfcamp during 2017; of these, 14 rigs will be in the northern area (13 rigs currently operating with an additional rig to be added in March) and four rigs will be focused in the northern portion of the southern Wolfcamp joint venture area (Pioneer has a 60% working interest in the joint venture); completions in both areas will be predominantly Version 3.0, with some wells testing larger completions during the year;
- planning to complete 20 wells in the Eagle Ford Shale, which includes nine drilled but uncompleted wells and 11 new drills (Pioneer has a 46% working interest); the objective of the limited new well program is to test longer laterals and higher-intensity completions;
- transferring West Panhandle gas processing operations from the Company’s Fain plant to a third-party facility in March;
- forecasting production growth in 2017 ranging from 15% to 18% compared to 2016 (approximately 62% oil content compared to 57% oil content in 2016); Spraberry/Wolfcamp production growth is expected to be the primary contributor, with growth ranging from 30% to 34% in 2017 compared to 2016 (oil growth expected to increase by 33% to 37%);
- expecting internal rates of return for the 2017 drilling program, including tank battery and saltwater disposal facility investments, ranging from 50% to 100% assuming an oil price of $55.00 per barrel and a gas price of $3.00 per thousand cubic feet (MCF);
- planning capital expenditures for 2017 of $2.8 billion, which includes $2.5 billion for drilling and completion activities and $275 million for water infrastructure, vertical integration and field facilities; this capital program assumes that further efficiency gains will offset the Company’s estimated cost inflation of 5%; Pioneer’s vertical integration operations mitigate the impact of the 10% to 15% cost inflation forecasted for the industry in 2017; the 2017 drilling and completion capital of $2.5 billion is $0.6 billion higher than 2016, reflecting (i) the higher Spraberry/Wolfcamp rig count for 2017, (ii) a reduced southern Wolfcamp joint venture drilling carry benefit in 2017, (iii) an increased number of higher-cost Version 3.0 completions in the 2017 Spraberry/Wolfcamp drilling program, (iv) additional tank batteries, saltwater disposal facilities and gas processing facilities related to the increased 2017 drilling activity in the Spraberry/Wolfcamp and (v) additional drilling activity in the Eagle Ford Shale in 2017;
- funding the 2017 capital program from forecasted cash flow of $2.2 billion and cash on hand;
- maintaining derivative positions that cover approximately 85% of forecasted 2017 oil production and 55% of forecasted 2017 gas production;
- forecasting net debt to 2017 operating cash flow to remain below 1.0 times; and
- high-grading Pioneer’s Permian acreage position by (i) agreeing in January to sell approximately 5,600 net acres in Upton and Andrews counties for $63 million (before normal closing adjustments) and (ii) evaluating offers to sell approximately 20,500 net acres in Martin County; also opening a data room to sell approximately 10,500 net acres in the Eagle Ford Shale.
President and CEO Timothy L. Dove stated, “Despite experiencing another year of downward pressure on oil prices, the Company’s focus on execution, improving capital efficiency and maintaining a strong balance sheet allowed us to meet or exceed all of the Company’s financial and operating goals for 2016 and deliver one of the best years in the Company’s 20-year history. The key drivers of this strong performance were the continued success of Pioneer’s horizontal drilling program in the Spraberry/Wolfcamp and the outstanding efforts of our employees. As we enter 2017, we are well positioned to drill high-return wells, grow production and bring forward the inherent net asset value associated with this world-class asset.”
“I am excited about Pioneer’s vision to grow production from 234 MBOEPD in 2016 to approximately 1 million barrels oil equivalent per day in 2026. We expect to achieve this vision by continuing to drill high-return wells that will deliver organic compound annual production growth of 15%+ and compound annual cash flow growth of approximately 20% over this 10-year period. This assumes an oil price of $55.00 per barrel and a gas price of $3.00 per MCF. In addition, we expect to maintain our net debt to operating cash flow ratio below 1.0 times and improve corporate returns. We also expect to spend within cash flow beginning in 2018 and generate free cash flow thereafter.”
Spraberry/Wolfcamp Operations Update and Outlook
Pioneer is the largest acreage holder in the Spraberry/Wolfcamp, with approximately 600,000 gross acres in the northern portion of the play and approximately 200,000 gross acres in the southern Wolfcamp joint venture area. Pioneer’s contiguous acreage position and substantial resource potential allow for decades of drilling horizontal wells with lateral lengths ranging from 7,500 feet to 14,000 feet.
The Company implemented a completion optimization program during 2015 in the Spraberry/Wolfcamp that combines longer laterals with optimized stage length, clusters per stage, fluid volumes and proppant concentrations. The objective of the program is to improve well productivity by allowing more rock to be contacted closer to the horizontal wellbore. In 2013 and 2014, the Company’s initial fracture stimulation design (Version 1.0) consisted of proppant concentrations of 1,000 pounds per foot, fluid concentrations of 30 barrels per foot, cluster spacing of 60 feet and stage spacing of 240 feet. Beginning in mid-2015, the Company enhanced its fracture stimulation design (Version 2.0), which consisted of larger proppant concentrations of 1,400 pounds per foot, larger fluid concentrations of 36 barrels per foot, tighter cluster spacing of 30 feet and shorter stage spacing of 150 feet. The Version 2.0 design increased the cost of a completion by approximately $500 thousand per well. Beginning in the first quarter of 2016, Pioneer commenced testing further-enhanced completion designs (Version 3.0), which included larger proppant concentrations up to 1,700 pounds per foot, larger fluid concentrations up to 50 barrels per foot, tighter cluster spacing down to 15 feet and shorter stage spacing down to 100 feet. The cost of this design added $500 thousand to $1 million per well compared to Version 2.0.
The Company placed 66 horizontal wells on production in the Spraberry/Wolfcamp during the fourth quarter of 2016, as expected. Of the 66 wells, 38 wells utilized the Version 3.0 completion design. Pioneer has now placed a total of 109 Version 3.0 wells on production since early 2016 (64 Wolfcamp B wells and 45 Wolfcamp A wells) compared to 151 wells that have been placed on production since mid-2015 utilizing the less-intense Version 2.0 completion design (131 Wolfcamp B wells and 20 Wolfcamp A wells). Production from the Version 3.0 completion optimization wells is continuing to outperform the Version 2.0 wells. The incremental capital cost to complete the Version 3.0 wells of $500 thousand to $1 million per well is paying out in less than one year at current prices.
The drilling and completion cost per perforated lateral foot for all horizontal wells placed on production (includes completion-optimized wells and non-optimized wells) in the Spraberry/Wolfcamp area averaged $817 per foot in the fourth quarter of 2016, a decrease of 25% from the first quarter of 2015. This decrease reflects the Company’s cost reduction initiatives and efficiency gains, and includes the use of more expensive Version 2.0 and Version 3.0 completion designs over the past 18 months (incremental $500 thousand per well and incremental $1.0 million to $1.5 million per well, respectively, compared to Version 1.0 completions). During the fourth quarter, Pioneer’s horizontal drilling and completion costs averaged $8.5 million for Wolfcamp B interval wells, $6.4 million for Wolfcamp A interval wells and $6.4 million for Lower Spraberry Shale interval wells. These wells had average perforated lateral lengths ranging from 8,200 feet to 9,500 feet.
Pioneer expects to place approximately 260 gross horizontal wells on production in the Spraberry/Wolfcamp during 2017. Of these wells, approximately 220 gross wells will be in the northern area and 40 gross wells will be in the southern Wolfcamp joint venture area (results in 244 net wells after recognizing Pioneer’s 60% interest in the wells in the southern Wolfcamp joint venture area). Approximately 55% of the wells will be in the Wolfcamp B, 30% in the Wolfcamp A and 15% in the Lower Spraberry Shale. The Company also plans a limited appraisal program for the Clearfork, Jo Mill and Wolfcamp D intervals during 2017.
As a result of the strong performance of Version 3.0 completions compared to Version 2.0 completions, the 2017 drilling program in the Spraberry/Wolfcamp will utilize predominantly Version 3.0 completions. The Company expects estimated ultimate recoveries (EURs) for the wells planned in the 2017 program to average 1.5 MMBOE for Wolfcamp B wells, 1.2 MMBOE for Wolfcamp A wells and 1.0 MMBOE for Lower Spraberry Shale wells. The expected costs to drill and complete these wells are: Wolfcamp B – $8.5 million for a 10,000-foot lateral well; Wolfcamp A – $7.5 million for a 9,500-foot lateral well; and Lower Spraberry Shale – $7.2 million for a 9,500-foot lateral well. Production costs for Pioneer’s horizontal Spraberry/Wolfcamp wells are expected to range from $4.00 per BOE to $5.00 per BOE (includes production and ad valorem taxes).
The drilling program in the Spraberry/Wolfcamp is expected to deliver internal rates of return (IRRs) ranging from 50% to 100%, assuming an oil price of $55.00 per barrel and a gas price of $3.00 per MCF. These returns, which include tank battery and saltwater disposal facility costs, are benefiting from ongoing cost reduction initiatives, drilling and completion efficiency gains and well productivity improvements.
The Company’s Spraberry/Wolfcamp horizontal drilling program continues to drive production growth, with total Spraberry/Wolfcamp production growing by 8 MBOEPD, or 5%, in the fourth quarter of 2016 compared to the third quarter of 2016. Oil production grew 8% in the fourth quarter and represented 69% of fourth quarter Spraberry/Wolfcamp production on a BOE basis. The Company continued to reject ethane during the fourth quarter due to weak market conditions, which negatively impacted production by approximately 4 MBOEPD.
For the fourth quarter of 2016, Pioneer placed 66 horizontal wells on production, up from the 46 wells placed on production in the third quarter. Sixty-four wells were in the northern area and two wells were in the southern Wolfcamp joint venture area. For the full year, 195 wells were placed on production in the northern area and 41 wells were placed on production in the southern Wolfcamp joint venture area.
Pioneer’s forecasted 2017 production growth rate for the Spraberry/Wolfcamp ranges from 30% to 34%, with oil production increasing 33% to 37%. This reflects the Company placing approximately 260 gross wells (244 net wells) on production in 2017. In the first quarter, the Company expects to place approximately 45 wells on production, which is weighted to the second half of the quarter, compared to 66 wells in the fourth quarter that were evenly distributed over the quarter. The Company assumes that it will continue to reject ethane throughout 2017 based on continuing weak market conditions.
Spraberry/Wolfcamp Vertical Integration and Gas Processing
Pioneer is focused on optimizing the development of the Spraberry/Wolfcamp, which includes ensuring that certain infrastructure and services are available. These include the build-out of a field-wide water distribution system, optimization of the Company’s sand mine in Brady, Texas, construction of additional field and gas processing facilities, and maintaining the Company’s pressure pumping equipment.
The Company is constructing a field-wide water distribution system to reduce the cost of water for drilling and completion activities and to ensure that adequate supplies of non-potable water are available for use in the development of the Spraberry/Wolfcamp field. The 2017 capital program includes $160 million for expansion of the mainline system, subsystems and frac ponds to efficiently deliver water to Pioneer’s drilling locations. The Company recently signed an agreement with the City of Midland to upgrade the City’s wastewater treatment plant in return for a dedicated long-term supply of water from the plant. The 2017 program includes $10 million of engineering capital to begin work on this upgrade. Pioneer expects to spend approximately $110 million over the 2017 through 2019 period for the Midland plant upgrade. In return, the Company will receive two billion barrels of low-cost, non-potable water over a 28-year contract period (up to 240 MBPD) to support its completion operations.
Pioneer’s sand mine in Brady, Texas, which is strategically located within close proximity (~190 miles) of the Spraberry/Wolfcamp field, provides a low-cost sand source for the Company’s horizontal drilling program. The 2017 capital program includes $30 million to complete an optimization project for the Company’s existing sand mining facilities. This project will improve yields and reduce the Company’s overall cost of supply. The 2017 capital program also includes $45 million for upgrades and maintenance to the six pressure pumping fleets that the Company plans to operate during 2017.
Pioneer owns a 27% interest in Targa Resources’ West Texas gas processing system and a 30% interest in WTG’s Sale Ranch gas processing system. These investments (i) improve Pioneer’s contract terms for field gas processing, (ii) ensure the timely connection of Pioneer’s new horizontal wells and (iii) provide the Company with opportunities to benefit from third-party processing revenues. During 2017, the Company expects to spend $70 million for system compression and new connections and $45 million for new gas processing capacity additions.
Eagle Ford Shale Operations
In the liquids-rich area of the Eagle Ford Shale play in South Texas, Pioneer is planning a limited horizontal drilling program in 2017 that will be focused in Karnes, DeWitt and Live Oak counties. The program, which is expected to begin in the second quarter, includes completing nine wells that were drilled in late 2015/early 2016 and drilling and completing 11 new wells.
The objective of this drilling program is to test longer laterals with higher-intensity completions in the new wells. Lateral lengths will be extended to 7,500 feet from the previous design of 5,200 feet, with cluster spacing reduced from 50 feet to 30 feet. Proppant concentrations will be increased from 1,200 pounds per foot to 2,000 pounds per foot. The cost of drilling and completing the new wells is expected to be $8.5 million per well. The Company expects EURs averaging 1.3 MMBOE for the new wells with IRRs ranging from 40% to 50%, assuming an oil price of $55.00 per barrel and a gas price of $3.00 per MCF.
Pioneer’s production from the Eagle Ford Shale averaged 27 MBOEPD in the fourth quarter, of which 33% was condensate, 33% was NGLs and 34% was gas. The 2017 drilling program is expected to moderate the production decline Pioneer has experienced in the field since it stopped drilling there in early 2016. While the year-over-year decline is still forecasted to be approximately 40%, the decline from the fourth quarter of 2016 to the fourth quarter of 2017 is expected to be shallower at 20% since the production from the 2017 program is heavily weighted to the second half of the year.
Pioneer’s acreage position in the Eagle Ford Shale is approximately 59,000 net acres, all of which is held by production. This excludes the 10,500 net acres that are currently being marketed for divestiture.
West Panhandle Operations
Production in the West Panhandle field during the fourth quarter of 7 MBOEPD was lower than planned as a result of continuing mechanical problems at Pioneer’s Fain gas processing plant. The Company will be transferring its West Panhandle gas processing operations to a third-party facility beginning in March. Due to the ongoing operational uncertainty at the Fain plant, the Company is estimating first quarter 2017 production of approximately 7 MBOEPD, which is consistent with actual results over the past six months when the plant was experiencing similar mechanical problems.
2017 Capital Program
The Company’s capital budget for 2017 is $2.8 billion (excluding acquisitions, asset retirement obligations, capitalized interest and geological and geophysical G&A and IT system upgrades), in line with the Company’s preliminary forecast of $2.7 billion to $2.8 billion. The budget includes $2.5 billion for drilling and completion activities, including tank batteries/saltwater disposal facilities and gas processing facilities, and $275 million for water infrastructure, vertical integration and field facilities.
The following provides a breakdown of the drilling capital budget by asset:
- Spraberry/Wolfcamp – $2.4 billion (includes $1.9 billion for the horizontal drilling program, $265 million for tank batteries/saltwater disposal facilities, $115 million for gas processing facilities and $110 million for land, science and other expenditures);
- Eagle Ford Shale – $95 million (includes $65 million for the horizontal drilling program and $30 million for compression, land and other expenditures); and
- Other assets – $20 million.
The 2017 drilling and completion capital of $2.5 billion is $0.6 billion higher than 2016 reflecting:
- the higher Spraberry/Wolfcamp rig count for 2017 ($224 million);
- a reduced Spraberry/Wolfcamp joint venture drilling carry benefit in 2017 ($137 million);
- additional tank batteries and saltwater disposal facilities related to the increased 2017 drilling activity in the Spraberry/Wolfcamp ($95 million);
- additional gas processing compression, hookups and new gas processing capacity additions required in the Spraberry/Wolfcamp to support the increased drilling activity ($70 million);
- an increase in the number of higher-cost Version 3.0 completions in the 2017 Spraberry/Wolfcamp drilling program ($65 million); and
- additional drilling activity in the Eagle Ford Shale in 2017 ($35 million).
The 2017 capital budget is expected to be funded from forecasted operating cash flow of $2.2 billion (assuming average 2017 estimated prices of $55.00 per barrel for oil and $3.00 per MCF for gas) and cash on hand (including liquid investments). Net debt to 2017 operating cash flow is forecasted to remain below 1.0 times.
Fourth Quarter 2016 Financial Review
Sales volumes for the fourth quarter of 2016 averaged 242 MBOEPD. Oil sales averaged 143 MBPD, NGL sales averaged 44 MBPD and gas sales averaged 328 million cubic feet per day.
The average realized price for oil was $46.13 per barrel. The average realized price for NGLs was $16.76 per barrel, and the average realized price for gas was $2.59 per MCF. These prices exclude the effects of derivatives.
Production costs averaged $8.20 per BOE. Depreciation, depletion and amortization (DD&A) expense averaged $16.
Pioneer Natural Resources
Frank Hopkins, 972-969-4065
Michael Bandy, 972-969-4513
Trey Muir, 972-969-3674
Media and Public Affairs
Tadd Owens, 972-969-5760
Robert Bobo, 972-969-4020
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