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Pioneer Talks Future Plans for its Permian, Eagle Ford Ops

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Pioneer Talks Future Plans for its Permian, Eagle Ford Ops

Pioneer Natural Resources Company announced financial and operating results for the quarter ended September 30, 2014.

Pioneer reported third quarter net income attributable to common stockholders of $374 million, or $2.58 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 gains and other unusual items, adjusted income for the third quarter was$195 million after tax, or $1.35 per diluted share.

Highlights:

  • producing 186 thousand barrels oil equivalent per day (MBOEPD) from continuing operations in the third quarter (reflects Barnett Shale and Hugoton divestitures as discontinued operations), an increase of 10 MBOEPD, or 6%, compared to the second quarter of 2014; oil production increased nine thousand barrels per day quarter over quarter; third quarter production growth was primarily driven by the Company’s successful Spraberry/Wolfcamp horizontal drilling program;
  • narrowing 2014 production growth forecast from continuing operations from a range of 16% to 19% to a range of 18% to 19% based on (i) being on schedule to more than double the number of horizontal wells placed on production in the Spraberry/Wolfcamp in the second half of 2014 compared to the first half of the year, (ii) mid-October production being greater than 195 MBOEPD and (iii) fourth quarter production forecasted to be in the range of 200 MBOEPD to 205 MBOEPD;
  • forecasting drilling capital expenditures of approximately $3.1 billion for 2014;
  • continuing to forecast annual production growth from continuing operations of 16% to 21% through 2016;
  • protecting cash flow with derivative coverage of greater than 85% of forecasted oil production for the remainder of 2014, greater than 85% for 2015 and 45% of forecasted 2016 production;
  • having 100% of the Company’s Spraberry/Wolfcamp area oil production protected against volatility in the Midland-Cushing oil price differential;
  • continuing to deliver production results that support strong estimated ultimate recoveries (EURs) and internal rates of return (IRRs) from Pioneer’s horizontal Wolfcamp and Lower Spraberry Shale wells placed on production in its northern Spraberry/Wolfcamp acreage since early 2013;
  • delineating the Wolfcamp A interval on a significant portion of Pioneer’s northern Spraberry/Wolfcamp acreage by placing 11 wells on production during the third quarter at an average 24-hour initial production rate of 1,225 barrels oil equivalent per day (BOEPD) and average lateral length of approximately 6,900 feet;
  • continuing the Company’s successful downspacing and staggering program in the Eagle Ford Shale, which included placing 18 wells on production in Upper targets during the third quarter;
  • exporting six cargoes of Eagle Ford Shale condensate from July through early November with improved pricing compared to domestic condensate sales;
  • observing that multiple independent studies have recently been published that support lifting the oil export ban in the U.S.;
  • announcing the closing of Pioneer’s Hugoton and Barnett Shale asset sales for $328 million and $150 million, respectively, including normal closing adjustments;
  • maintaining a strong balance sheet with $550 million of cash on hand at the end of the third quarter and net debt-to-book capitalization of 23%; and
  • announcing plans to divest Pioneer’s 50.1% share of Eagle Ford ShaleMidstream business.

Scott D. Sheffield, Chairman and CEO, stated, "The Company delivered another great quarter, with strong earnings, production at the top end of our third-quarter guidance range and continued impressive horizontal well performance in the Spraberry/Wolfcamp. We have successfully transformed our Spraberry/Wolfcamp acreage from a vertical play into a world-class horizontal play and are delivering the second half production growth we forecasted earlier this year. We now expect to grow production by 18% to 19% in 2014, the upper end of our full-year guidance range, and believe we can deliver consistent annual production growth of 16% to 21% through 2016 at attractive returns ranging from 40% to 80% in a $70 to $80oil price environment.

"Looking beyond 2014, Pioneer plans to continue to prudently develop our industry-leading position in the Spraberry/Wolfcamp. Our rig contracts provide us with the flexibility to adjust our rig count with fluctuations in oil prices. Construction of front-end loaded infrastructure, which is expected to provide significant future cost savings and support Pioneer’s long-term growth plans in the Spraberry/Wolfcamp, is expected to continue. This infrastructure includes a field-wide water distribution network, continued build-out of horizontal tank batteries, additional gas processing facilities and expansion of the Brady sand mine."

Operations Update

Pioneer Grows Wolfcamp, Spraberry Ops; Details Strongest IPs

Pioneer Ups Sand Proppant Usage in the Eagle Ford

Optimizing Returns

Pioneer is identifying and implementing a number of optimization and cost reduction initiatives to address the recent decline in oil prices. The Company will focus its horizontal drilling activity in the Spraberry/Wolfcamp on the best intervals. These intervals include the Wolfcamp B, Wolfcamp A and Lower Spraberry Shale where EURs are expected to be 800 MBOE to 1 MMBOE. Further appraisal of other intervals, including the Middle Spraberry Shale and Jo Mill Shale, may be deferred. Field-wide completion optimization testing will continue while other “science” activities will be limited.

2014 Capital Budget

Pioneer’s capital program for 2014 is forecasted at $3.4 billion (excludes acquisitions, asset retirement obligations, capitalized interest, geological and geophysical G&A and capital expenditures associated with theAlaska and Barnett Shale assets prior to their sale). It includes $3.1 billion for drilling and $0.3 billion for vertical integration and the construction of new field and office buildings.

The 2014 capital budget is expected to be funded from forecasted operating cash flow of $2.4 billion, proceeds from asset divestitures and cash on hand of $550 million as of September 30, 2014.

Pioneer’s net debt at the end of the third quarter was $2.1 billion, with net debt-to-book capitalization of 23%. The Company will continue to target a net debt-to-book capitalization below 35% and net debt-to-operating cash flow below 1.5.

Third Quarter 2014 Financial Review

Sales volumes from continuing operations for the third quarter of 2014 averaged 186 MBOEPD (excludes Barnett Shale and Hugoton production, which is reflected in discontinued operations). Oil sales averaged 89 thousand barrels per day (MBPD), natural gas liquids (NGLs) sales averaged 40 MBPD and gas sales averaged 344 MMCFPD.

The average realized price for oil was $90.82 per barrel. The average realized price for NGLs was $28.44 per barrel, and the average realized price for gas was $3.79 per MCF. These prices exclude the effects of derivatives.

Production costs from continuing operations averaged $13.17 per barrel oil equivalent (BOE). Depreciation, depletion and amortization (DD&A) expense averaged $16.03 per BOE. Exploration and abandonment costs were $22 million, principally comprised of $5 million for seismic data and$16 million for personnel costs. General and administrative expense totaled$81 million. Interest expense was $46 million and other expense was $20 million.

Fourth Quarter 2014 Financial Outlook

The Company’s fourth quarter 2014 outlook for certain operating and financial items is provided below.

Production is forecasted to average 200 MBOEPD to 205 MBOEPD.

Production costs are expected to average $13.25 per BOE to $15.25 per BOE. DD&A expense is expected to average $15.00 per BOE to $17.00 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 $46 million to $51 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 $1 million to $5 millionand are primarily attributable to state taxes.