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Providing coverage of Alaska and northern Canada's oil and gas industry
April 2011

Vol. 16, No. 17 Week of April 24, 2011

Pioneer gung-ho on Spraberry, Eagle Ford projects in Texas

Company pumping money into drilling programs in Lower 48 plays that offer high rates of return, strong growth in cash flow

Alan Bailey

Petroleum News

Coming a couple of months after Pioneer Natural Resources announced that it was pulling the plug on its Cosmopolitan oil project in Alaska’s Cook Inlet, an April 12 presentation to the IPAA Oil and Gas Investment Symposium by Scott Sheffield, the company’s chairman and CEO, provided some useful insights into where the company’s investment priorities now lie.

And Alaska did not appear to be high on the list.

Pioneer is using the $856 million dollars in proceeds from the recent sale of its Tunisia assets primarily to boost its rig count in the Spraberry trend in west Texas and Eagle Ford shale plays in south Texas, Sheffield said. The company is currently operating about 45 drilling rigs in those two plays and expects that rig count to increase to about 60. Pioneer has more than 20,000 potential drilling locations in the two plays, Sheffield said.

“Next year we’ll be drilling about 1,200, 1,300 of those locations per year,” Sheffield said.

18 percent growth

The company expects the drilling activity to translate to an 18 percent per year compound increase in oil production, resulting in a compound increase of more than 30 percent per year in cash flow, with much of the cash being re-invested in the Spraberry and Eagle Ford, he said.

The Spraberry trend will see the lion’s share of Pioneer’s drilling investment in 2011, with something in excess of $1 billion going into Spraberry wells. Pioneer anticipates drilling more than 1,000 conventional vertical wells, although the company, along with the rest of the industry, is taking an increasing interest in using horizontal drilling to exploit shale zones in the play.

With more than 200 drilling rigs in operation in the region, the Spraberry trend is the most talked about and active play in the United States today, Sheffield said.

Sheffield said that, using its own fracking equipment, Pioneer can drill a well in the Spraberry trend for a total cost of $1.4 million to $1.5 million, compared with the more typical cost of $2 million for a well in the region.

The Eagle Ford shale is currently the second most active play in the United States, with the total count of active rigs in the play expected to reach 200 or more soon, Sheffield said. Pioneer currently operates eight rigs in the Eagle Ford but anticipates using 14 rigs by the end of this year.

The amount of liquids — oil and natural gas liquids — produced from both the Spraberry and the Eagle Ford have a major impact on development and production economics. A typical Spraberry trend well produces 90 percent liquids, Sheffield said. And, in the Eagle Ford shale, although Pioneer will need to drill some pure gas wells to preserve lease positions, the company typically targets locations where it can anticipate condensate production. The internal rate of return can range from 70 to 110 percent on developments with condensate production, depending on the condensate price and the condensate yield, according to data that Sheffield presented.






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