Exploration & Production | Drilling / Well Results | Quarterly / Earnings Reports | Second Quarter (2Q) Update

Pioneer Natural Touts Impressive HZ Well Results in 2Q

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   |    Monday,August 04,2014

Pioneer Natural Resources Company has reported financial and operating results for the quarter ended June 30, 2014.

Pioneer reported second quarter net income attributable to common stockholders of $1 million, or $0.01 per diluted share (see attached schedule for a description of the net income per diluted share calculation). Without the effect of noncash derivative mark-to-market losses and other unusual items, adjusted income for the second quarter was $195 million after tax, or $1.35 per diluted share.

Highlights:

• producing 183 thousand barrels oil equivalent per day (MBOEPD) from continuing operations in the second quarter (reflects Alaska and Barnett Shale as discontinued operations), an increase of 11 MBOEPD, or 6%, compared to the first quarter of 2014; second quarter production growth was primarily driven by the Company’s successful Spraberry/Wolfcamp and Eagle Ford Shale horizontal drilling programs, which added approximately 3 thousand barrels per day of oil production; production for the quarter also benefited from efficiency improvements in Spraberry/Wolfcamp area gas processing operations;
• narrowing annual production growth forecast from continuing operations from a range of 14% to 19% to a range of 16% to 19% (upper end of the range) based on better-than-expected production growth in the first half of 2014 and being on target to nearly double the number of horizontal wells placed on production in the Spraberry/Wolfcamp area from 68 wells in the first half of 2014 to 125 wells in the second half;
• continuing to forecast 2014 drilling capital of $3.0 billion;
• expecting compound annual production growth from continuing operations of 16% to 21% for 2014 to 2016 and to more than double production by 2018 as compared to 2013;
• delivering production results that support strong estimated ultimate recoveries (EURs) and internal rates of return from Pioneer’s horizontal Wolfcamp and Lower Spraberry Shale wells placed on production in its northern Spraberry/Wolfcamp acreage since early 2013;
• securing long-term water supply to support fracture stimulation operations in the Spraberry/Wolfcamp area; agreements are being finalized to purchase approximately 120 thousand barrels per day and 240 thousand barrels per day of effluent water from the City of Odessa, Texas, and the City of Midland, Texas, respectively;
• continuing the Company’s successful downspacing and staggering program in the Eagle Ford Shale, which included placing 17 wells on production in Upper targets in the first half of 2014;
• receiving confirmation from the U.S. Department of Commerce that condensate processed at Pioneer’s Eagle Ford Shale central gathering plants in South Texas is a petroleum product that can be exported without a license; the first cargo was exported in late July;
• announcing the sale of Pioneer’s Hugoton, Kansas, assets to Linn Energy, LLC for $340 million, with closing expected by the end of the third quarter of 2014; financial and operating results are expected to be reflected as discontinued operations beginning in the third quarter of 2014;
• announcing the sale of Pioneer’s Barnett Shale assets to an undisclosed private company for $155 million, with closing expected by the end of the third quarter of 2014;
• having derivative coverage for more than 85% of forecasted oil production for the remainder of 2014 at $93 per barrel or higher;
• having approximately 100% of the Company’s Spraberry/Wolfcamp area oil production protected against volatility in the Midland-Cushing oil price differential; and
• maintaining a strong balance sheet with $445 million of cash on hand at the end of the second quarter and net debt-to-book capitalization of 25%.

Scott D. Sheffield, Chairman and CEO, stated, "The Company delivered another great quarter, with strong earnings, production exceeding expectations and continued impressive horizontal well performance in the Spraberry/Wolfcamp and the Eagle Ford Shale areas. We are successfully transforming the substantial resource potential we delineated in 2013 into strong production growth. As a result, we now expect to grow production by 16% to 19% this year – the upper end of our guidance range. Looking beyond 2014, we expect to continue to ramp up our horizontal rig count in the Spraberry/Wolfcamp by five to ten rigs per year.

"We are pleased that the U.S. Department of Commerce has recently confirmed that Pioneer may begin exporting processed condensate from the Eagle Ford Shale. Our first cargo was shipped in late July and monthly shipments are expected through the end of this year at prices higher than domestic condensate sales. International interest for our processed Eagle Ford Shale condensate is growing, particularly from Asian petrochemical companies."

Operations Update and Drilling Program

Pioneer has updated its Permian Basin and Eagle Ford E&P programs, which can be accessed below:

Pioneer Turns on Taps at 40 Permian Wells; Predicts Massive Growth

Pioneer Downspaces Eagle Ford by 500 Feet; Talks Casing Design

2014 Capital Budget

Pioneer’s capital program for 2014 of $3.3 billion (excludes acquisitions, asset retirement obligations, capitalized interest, geological and geophysical G&A and capital expenditures associated with the Alaskaand Barnett Shale assets prior to their sale) includes $3.0 billion for drilling and $0.3 billion for vertical integration and the construction of new field and office buildings.

The following provides a breakdown of the drilling capital by asset:

• Northern Spraberry/Wolfcamp area – $2,165 million (includes $1,225 million for the horizontal drilling program, $440 million for the vertical drilling program, $400 million for infrastructure additions, land and science and $100 million for gas processing facilities)
• Southern Wolfcamp joint venture area (net of carry) – $205 million(includes $140 million for the horizontal drilling program and $65 millionfor infrastructure additions, land and science)
• Eagle Ford Shale – $545 million (includes $480 million for the horizontal drilling program and $65 million for infrastructure additions and land)
• Other assets – $100 million

The 2014 capital budget is expected to be funded from forecasted operating cash flow of $2.5 billion (assuming commodity prices of $100per barrel for oil and $4.50 per thousand cubic feet (MCF) for gas), cash on the balance sheet and the proceeds from divestitures.

Pioneer’s net debt at the end of the second quarter was $2.2 billion with net debt-to-book capitalization of 25%. The Company will continue to target a net debt-to-book capitalization below 35% and net debt-to-operating cash flow below 1.5.

Second Quarter 2014 Financial Review

Sales volumes from continuing operations for the second quarter of 2014 averaged 183 MBOEPD (excludes Alaska and Barnett Shale production, which is reflected in discontinued operations). Oil sales averaged 80 thousand barrels per day (MBPD), natural gas liquids (NGLs) sales averaged 41 MBPD and gas sales averaged 370 million cubic feet per day.

The average realized price for oil was $95.87 per barrel. The average realized price for NGLs was $30.65 per barrel, and the average realized price for gas was $4.38 per MCF. These prices exclude the effects of derivatives.

Production costs from continuing operations averaged $13.96 per barrel oil equivalent (BOE). Depreciation, depletion and amortization (DD&A) expense averaged $14.90 per BOE. Exploration and abandonment costs were $29 million, principally comprised of $3 million associated with drilling and acreage abandonments, $10 million for seismic data and $16 million for personnel costs. General and administrative expense totaled$82 million. Interest expense was $47 million and other expense was $22 million.

Third Quarter 2014 Financial Outlook

The Company’s third quarter 2014 outlook for certain operating and financial items is provided below. This outlook excludes Barnett Shale andHugoton results of operations as such activity is expected to be reflected in discontinued operations.

Production is forecasted to average 181 MBOEPD to 186 MBOEPD.

Production costs are expected to average $13.50 per BOE to $15.50 per BOE. DD&A expense is expected to average $14.00 per BOE to $16.00 per BOE. Total exploration and abandonment expense is forecasted to be $25 million to $35 million.

General and administrative expense is expected to be $80 million to $85 million, interest expense is expected to be $47 million to $52 million and other expense is expected to be $25 million to $35 million. Accretion of discount on asset retirement obligations is expected to be $3 million to $5 million.

The Company’s effective income tax rate is expected to range from 35% to 40%. Current income taxes are expected to be $10 million to $15 million and are primarily attributable to federal alternative minimum tax and state taxes.