DALLAS–(BUSINESS WIRE)–Pioneer Natural Resources Company (NYSE:PXD) (“Pioneer” or “the Company”) today reported financial and operating results for the quarter ended September 30, 2017.
Pioneer reported a third quarter net loss attributable to common stockholders of $23 million, or $0.13 per diluted share. Without the effect of noncash mark-to-market derivative losses of $103 million after tax, or $0.61 per diluted share, adjusted results for the third quarter were earnings of $80 million after tax, or $0.48 per diluted share.
Third quarter financial, production and other recent highlights included:
- producing 276 thousand barrels oil equivalent per day (MBOEPD), an increase of 17 MBOEPD, or 6%, compared to the second quarter of 2017; third quarter production was negatively impacted by 3,500 barrels oil equivalent per day (BOEPD) due to Hurricane Harvey and unplanned downtime at a third-party gas processing facility; production would have been at the top end of Pioneer’s third quarter guidance range of 274 MBOEPD to 279 MBOEPD without these negative impacts; third quarter production growth was driven by the Company’s Spraberry/Wolfcamp horizontal drilling program;
- producing 162 thousand barrels per day (MBPD) of oil, an increase of 15 MBPD, or 10%, compared to the second quarter of 2017;
- increasing Spraberry/Wolfcamp horizontal production by 22 MBOEPD, or 13%, compared to the second quarter of 2017; horizontal oil production increased by 17 MBPD, or 15% quarter over quarter; internal rates of return (IRRs) from the Spraberry/Wolfcamp drilling program continue to be strong;
- reducing production costs (excluding taxes) to $6.01 per barrel oil equivalent (BOE) compared to $6.19 per BOE in the second quarter of 2017 and $6.79 per BOE in 2016; third quarter production costs benefited from continuing low horizontal Spraberry/Wolfcamp production costs of $1.85 per BOE (excluding taxes);
- adding 2018 derivatives for 59 MBPD of oil and 83 million cubic feet per day (MMCFPD) of gas; Pioneer’s 2018 derivative positions now cover more than 80% of forecasted oil production and more than 35% of forecasted gas production;
- continuing to maintain a strong balance sheet with cash on hand at the end of the third quarter of $2.1 billion (includes liquid investments); net debt to forecasted 2017 operating cash flow was 0.3 times at the end of the third quarter and net debt-to-book capitalization was 5%; and
- exporting 1.4 million barrels of Pioneer’s Midland Basin oil production during the third quarter and expecting to export over 2.3 million barrels during the fourth quarter; customers are located in Asia and Europe.
Pioneer’s third quarter drilling update and other recent operations activity included:
- adding two rigs recently in the Spraberry/Wolfcamp to improve operational flexibility by increasing Pioneer’s inventory of wells that have been drilled and are awaiting completion (DUCs); once an adequate DUC inventory is built in the second half of 2018, the Company expects to use these two rigs to achieve longer-term production growth targets, which is consistent with the Company’s previously discussed plans to add drilling rigs in the second half of 2018; the Company is now operating 20 rigs in the Spraberry/Wolfcamp, with 16 of these rigs in the northern area and 4 rigs in the southern Wolfcamp joint venture area where Pioneer holds a working interest of 60%; the 2017 capital budget is being increased by $50 million, primarily to reflect the capital associated with the two additional Spraberry/Wolfcamp rigs and higher than anticipated completion costs in the Eagle Ford Shale;
- utilizing four-string casing design successfully in areas of the Spraberry/Wolfcamp where this design is necessary;
- placing 61 horizontal wells on production in the Spraberry/Wolfcamp during the third quarter; 59 wells were Version 3.0 completions that continue to outperform Version 2.0 completions; two wells were completed in the Jo Mill interval; early production results from both Jo Mill wells continue to support the successful appraisal of this interval;
- continuing to see encouraging results from the 12 Spraberry/Wolfcamp wells that were placed on production in the second quarter of 2017 with higher intensity completions (referred to as Version 3.0+ completions);
- expecting to place approximately 70 wells on production in the Spraberry/Wolfcamp during the fourth quarter of 2017, resulting in approximately 230 wells being placed on production during 2017; IRRs for this year’s Spraberry/Wolfcamp drilling program are expected to range from 40% to 75%, assuming an oil price of $50 per barrel and a gas price of $3 per thousand cubic feet (MCF);
- drilling and completing 11 new wells and completing nine DUC wells in the Eagle Ford Shale during 2017 (Pioneer has a 46% working interest); the objective of this limited new well drilling program is to test longer laterals with wider spacing and higher intensity completions; IRRs on this year’s drilling program are expected to range from 30% to 40%, assuming an oil price of $50 per barrel and a gas price of $3 per MCF; two new drills and nine DUCs were placed on production in the Eagle Ford Shale during the second and third quarters; the average cumulative production per well from the new drills and DUCs after approximately 80 days and 140 days of production, respectively, is more than double the average cumulative production per well for the same time period from all wells placed on production during 2015 and 2016; two additional new drills were placed on production in early October; and
- resuming production (approximately 8 MBOEPD) in the West Panhandle field in late October after volumes were temporarily shut in due to a fire at a third-party gas processing facility in mid-September; downtime from the fire impacted third quarter production by approximately 1,300 BOEPD.
President and CEO Timothy L. Dove stated, “The Company delivered another excellent quarter, with solid earnings, significant oil production growth, strong horizontal well performance in the Spraberry/Wolfcamp and reduced production costs. Our world-class Spraberry/Wolfcamp asset is located in the Midland Basin, considered by many to be the top oil shale play in North America. We are drilling low-cost, highly productive wells that generate high returns and have industry-leading breakeven oil prices.”
“Despite the drilling delays that we experienced in the second quarter, our operations are back on track and we remain committed to our 10-year plan of drilling high-return wells that will deliver organic compound annual production growth of 15%+. Achieving this target will result in oil production of approximately 700 MBPD in 2026 and total production greater than 1 million barrels oil equivalent per day. This plan will allow us to maintain a steady pace of activity, spend within cash flow by 2020 at an oil price of $50 per barrel, maintain a strong balance sheet and improve corporate returns.”
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 lengths, 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. 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 Company placed 59 Version 3.0 wells on production in the third quarter. These wells and the more than 200 Version 3.0 wells that were placed on production prior to the third quarter of 2017 are continuing to outperform Version 2.0 completions.
Pioneer placed 12 wells on production during the second quarter that utilized higher intensity completions compared to Version 3.0 wells. These are referred to as Version 3.0+ completions. Nine of the Version 3.0+ wells utilized increased proppant and three utilized increased proppant and water compared to Version 3.0 wells. Early production results from all of these wells are outperforming nearby offset wells with less intense completions. The Company plans to test a minimum of three additional 3.0+ wells over the remainder of the year.
In addition to the 59 Version 3.0 wells that were placed on production during the third quarter, Pioneer placed two Jo Mill wells on production. Eleven wells have now been tested as part of the Jo Mill appraisal program since the fourth quarter of 2014. Performance from all of these wells is encouraging. The Jo Mill wells placed on production to date cover a large cross section of Pioneer’s acreage. The Company plans to drill additional Jo Mill wells during 2018. The cost of a Jo Mill well is approximately $7 million for a lateral length of 8,500 feet.
The budgeted costs to drill and complete Spraberry/Wolfcamp horizontal wells in 2017 are: Wolfcamp B – $8.8 million for a 10,000-foot lateral well; Wolfcamp A – $7.8 million for a 9,500-foot lateral well; and Lower Spraberry Shale – $7.5 million for a 9,500-foot lateral well. For the 2017 drilling program, the expected ultimate recoveries (EURs) by interval are: Wolfcamp B – 1.7 MMBOE, Wolfcamp A – 1.3 MMBOE and the Lower Spraberry Shale – 1.0 MMBOE.
Production costs (including production and ad valorem taxes) for Pioneer’s horizontal Spraberry/Wolfcamp wells are expected to continue to range from $4.00 per BOE to $5.00 per BOE.
The drilling program in the Spraberry/Wolfcamp is expected to deliver IRRs ranging from 40% to 75%, assuming Version 3.0 completions, an oil price of $50.00 per barrel and a gas price of $3.00 per MCF. These returns include tank battery and saltwater disposal facility costs.
The Company’s Spraberry/Wolfcamp horizontal drilling program continues to drive production growth, with Spraberry/Wolfcamp horizontal production growing by 22 MBOEPD, or 13%, in the third quarter of 2017 compared to the second quarter. Pioneer’s forecasted 2017 production growth rate for the Spraberry/Wolfcamp ranges from 30% to 32%. This reflects the Company placing approximately 230 wells on production in 2017. Of these wells, approximately 190 wells are expected to be in the northern area and 40 wells will be 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.
In the fourth quarter, the Company expects to place approximately 70 wells on production, which are expected to be weighted evenly across the quarter.
Eagle Ford Shale Operations
In the liquids-rich area of the Eagle Ford Shale play in South Texas, Pioneer is completing a limited horizontal drilling and completion program during 2017 that is focused in Karnes, DeWitt and Live Oak counties. The program includes completing nine wells that were drilled in late 2015/early 2016 and drilling and completing 11 new wells.
The objective of this drilling and completion program is to test longer laterals with wider spacing and higher intensity completions in the new wells. Lateral lengths are being extended to 7,500 feet from the previous design of 5,200 feet, with cluster spacing being reduced from 50 feet to 30 feet. Proppant concentrations are being 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 $9.6 million per well. The Company expects EURs averaging 1.3 MMBOE for the new wells with IRRs ranging from 30% to 40%, assuming an oil price of $50.00 per barrel and a gas price of $3.00 per MCF.
Drilling was completed on the 11 new wells during the second quarter. Two of these wells were placed on production during the third quarter. Of the remaining nine wells, two wells were placed on production in October and the remaining seven wells are expected to be placed on production in mid-November. The nine DUCs were placed on production during the second and third quarters. The average cumulative production per well from the new drills and DUCs after approximately 80 days and 140 days of production, respectively, is more than double the average cumulative production per well for the same time period from all wells placed on production during 2015 and 2016.
Pioneer’s production from the Eagle Ford Shale averaged 21 MBOEPD in the third quarter, of which 34% was condensate, 34% was NGLs and 32% was gas. The 2017 drilling program is expected to moderate the production decline Pioneer has experienced in the field since it stopped drilling operations in early 2016. The year-over-year decline is forecasted to be approximately 35%.
West Panhandle Operations
The West Panhandle field produced 4,500 BOEPD during the third quarter of 2017, reflecting the impact of multiple downtime events at the third-party gas processing plant where the liquids-rich gas from the field is processed into gas and NGLs. Early in the third quarter, field production was shut in due to a planned turnaround at the third-party plant. In mid-September, the field had to be shut in again after the plant incurred significant damage due to a fire. Repairs to the plant are underway, but it is expected to be several months before the plant can be placed back into service. As a result, the third party and Pioneer have made modifications to their respective facilities to enable field production to resume, with the gas volumes being rerouted to another gas processing facility operated by the third party. Production from the field resumed in late October at approximately 8 MBOEPD. The impact to third quarter production from the unplanned downtime associated with the fire was approximately 1,300 BOEPD, with most of this loss being gas and NGLs.
2017 Capital Program
The Company’s capital budget for 2017 is being increased from $2.7 billion to $2.75 billion (excluding acquisitions, asset retirement obligations, capitalized interest, geological and geophysical G&A and IT system upgrades). The increase reflects the recent decision to add two rigs in the Spraberry/Wolfcamp to improve operational flexibility by increasing Pioneer’s DUC inventory. Once an adequate DUC inventory is built in the second half of 2018, the Company expects to use these two rigs to achieve longer-term production growth targets, which is consistent with the Company’s previously discussed plans to add drilling rigs in the second half of 2018 for this purpose. The increased capital spending also includes higher than anticipated completion costs in the Eagle Ford Shale.
The budget includes $2.475 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 – $2.35 billion (includes $1.86 billion for the horizontal drilling and completion 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 – $105 million (includes $75 million for the horizontal drilling and completion program and $30 million for compression, land and other expenditures); and
- Other assets – $20 million.
Capital spending for 2017 is expected to be funded from forecasted operating cash flow of $1.9 billion (assuming average estimated prices for 2017 of $49.50 per barrel for oil and $3.00 per MCF for gas) and cash on hand (including liquid investments).
Third Quarter 2017 Financial Review
Sales volumes for the third quarter of 2017 averaged 276 MBOEPD. Oil sales averaged 162 MBPD, NGL sales averaged 57 MBPD and gas sales averaged 340 MMCFPD.
The average realized price for oil was $45.35 per barrel. The average realized price for NGLs was $18.96 per barrel, and the average realized price for gas was $2.58 per MCF. These prices exclude the effects of derivatives.
Production costs, including taxes, averaged $8.11 per BOE. Depreciation, depletion and amortization (DD&A) expense averaged $14.01 per BOE. Exploration and abandonment costs were $18 million, including $3 million for seismic purchases and $15 million for personnel costs. General and administrative expense totaled $81 million. Interest expense was $37 million. Other expense was $58 million, including $45 million of charges associated with excess firm gathering and transportation commitments.
Fourth Quarter 2017 Financial Outlook
The Company’s fourth quarter 2017 outlook for certain operating and financial items is provided below.
Production is forecasted to average 292 MBOEPD to 302 MBOEPD.
Production costs are expected to average $7.50 per BOE to $9.50 per BOE. DD&A expense is expected to average $13.50 per BOE to $15.50 per BOE. Total exploration and abandonment expense is forecasted to be $20 million to $30 million.
General and administrative expense is expected to be $80 million to $85 million. Interest expense is expected to be $34 million to $39 million. Other expense is forecasted to be $60 million to $70 million and is expected to include $45 million to $55 million of charges associated with excess firm gathering and transportation commitments. Accretion of discount on asset retirement obligations is expected to be $4 million to $7 million.
The Company’s effective income tax rate is expected to range from 35% to 40%. Current income taxes are expected to be less than $5 million.
The Company’s financial and derivative mark-to-market results and open derivatives positions are outlined on the attached schedules.
Earnings Conference Call
On Thursday, November 2, 2017, at 9:00 a.m. Central Time, Pioneer will discuss its financial and operating results for the quarter ended September 30, 2017, with an accompanying presentation. Instructions for listening to the call and viewing the accompanying presentation are shown below.
Select “Investors,” then “Earnings & Webcasts” to listen to the discussion, view the presentation and see other related material.
Telephone: Dial (888) 539-3696 and confirmation code 3153325 five minutes before the call. View the presentation via Pioneer’s internet address above.
A replay of the webcast will be archived on Pioneer’s website. This replay will be available through November 27, 2017. Click Here to register for the call-in audio replay, and you will receive the dial-in information.
Pioneer is a large independent oil and gas exploration and production company, headquartered in Dallas, Texas, with operations in the United States. For more information, visit www.pxd.com.
Except for historical information contained herein, the statements in this presentation are forward-looking statements that are made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements and the business prospects of Pioneer are subject to a number of risks and uncertainties that may cause Pioneer’s actual results in future periods to differ materially from the forward-looking statements. These risks and uncertainties include, among other things, volatility of commodity prices, product supply and demand, competition, the ability to obtain environmental and other permits and the timing thereof, other government regulation or action, the ability to obtain approvals from third parties and negotiate agreements with third parties on mutually acceptable terms, completion of planned divestitures, litigation, the costs and results of drilling and operations, availability of equipment, services, resources and personnel required to perform the Company’s drilling and operating activities, access to and availability of transportation, processing, fractionation, refining and export facilities, Pioneer’s ability to replace reserves, implement its business plans or complete its development activities as scheduled, access to and cost of capital, the financial strength of counterparties to Pioneer’s credit facility, investment instruments and derivative contracts and purchasers of Pioneer’s oil, natural gas liquid and gas production, uncertainties about estimates of reserves and resource potential, identification of drilling locations and the ability to add proved reserves in the future, the assumptions underlying production forecasts, quality of technical data, environmental and weather risks, including the possible impacts of climate change, the risks associated with the ownership and operation of the Company’s industrial sand mining and oilfield services businesses and acts of war or terrorism. These and other risks are described in Pioneer’s Annual Report on Form 10-K for the year ended December 31, 2016, and other filings with the Securities and Exchange Commission. In addition, Pioneer may be subject to currently unforeseen risks that may have a materially adverse impact on it. Accordingly, no assurances can be given that the actual events and results will not be materially different than the anticipated results described in the forward-looking statements. Pioneer undertakes no duty to publicly update these statements except as required by law.
Cautionary Note to U.S. Investors –The SEC prohibits oil and gas companies, in their filings with the SEC, from disclosing estimates of oil or gas resources other than “reserves,” as that term is defined by the SEC. In this presentation, Pioneer includes estimates of quantities of oil and gas using certain terms, such as “resource potential,” “net recoverable resource potential,” “recoverable resource,” “estimated ultimate recovery,” “EUR,” “oil in place” or other descriptions of volumes of reserves, which terms include quantities of oil and gas that may not meet the SEC’s definitions of proved, probable and possible reserves, and which the SEC’s guidelines strictly prohibit Pioneer from including in filings with the SEC. These estimates are by their nature more speculative than estimates of proved reserves and, accordingly, are subject to substantially greater risk of being recovered by Pioneer. U.S. investors are urged to consider closely the disclosures in the Company’s periodic filings with the SEC. Such filings are available from the Company at 5205 N. O’Connor Blvd., Suite 200, Irving, Texas 75039, Attention: Investor Relations, and the Company’s website at www.pxd.com. These filings also can be obtained from the SEC by calling 1-800-SEC-0330.
|PIONEER NATURAL RESOURCES COMPANY|
|UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS|
|September 30, 2017||December 31, 2016|
|Cash and cash equivalents||$||636||$||1,118|
|Accounts receivable, net||649||518|
|Income taxes receivable||1||3|
|Total current assets||2,901||3,298|
|Property, plant and equipment, at cost:|
|Oil and gas properties, using the successful efforts method of accounting||20,188||19,052|
|Accumulated depletion, depreciation and amortization||(8,841)||(8,211)|
|Total property, plant and equipment||11,347||10,841|
|Other property and equipment, net||1,683||1,529|
|Other assets, net||106||99|
|LIABILITIES AND EQUITY|
|Current portion of long-term debt||449||485|
|Total current liabilities||1,715||1,566|
|Deferred income taxes||1,475||1,397|