Pioneer Natural Resources Company (PXD) plans to divest all its properties in the Barnett shale region of Texas in order to focus on other core assets in the U.S. as well as reduce debt. The company hopes to complete the sale in the first quarter of 2013.
Since its entry in the Barnett shale back in 2007, Pioneer acquired approximately 155,000 gross acres in the play, concentrated mostly in northern Wise and southern Montague counties. Two-thirds of the assets are in the liquids-rich Barnett shale combo play, while the remaining one-third of the acreage is located in the dry gas portion of the play.
Pioneer has produced approximately 7,000 barrels of oil equivalent per day (BOE/d) in the acreage that comprised approximately 55% oil and natural gas liquids (NGLs) and 45% dry gas. During the first half of the year, Pioneer employed two rigs in the Barnett Shale.
However, reacting to the low U.S. natural gas and NGL prices, the company lowered the number of rigs to one in August. It has drilled 12 wells in the second quarter.
The Dallas-based oil and gas company aims to redirect the proceeds to more high-return, core properties in the Spraberry vertical play, the horizontal Wolfcamp Shale play and the Eagle Ford Shale. The company holds 609 million BOE of proved reserves in its Spraberry assets. Considering the Horizontal Wolfcamp and Spraberry plays, Pioneer has 5.6 billion BOE of additional net resource potential in its Permian acreage.
Recently, Pioneer raised its production growth target for the year to a band of 25–29% versus the earlier expectation of 23% to 25%. The increased guidance is mainly a function of strong drilling results and robust well outcomes in spite of reduced drilling operations planned for the balance of the year.
We see the guidance as positive, given the encouraging results from the company’s horizontal Wolfcamp program. In particular, Pioneer’s stepped up activities in the horizontal Wolfcamp Shale play – where EOG Resources Inc. (EOG) is also a leaseholder – provides a multi-year inventory of development drilling opportunities.
However, the company’s second quarter earnings were negatively affected mainly due to lower price realization as well as higher expenses. We remain skeptical about the slowing down of Pioneer’s drilling program in the second half of the year to maintain its $2.4 billion exploration and development budget. This was due to increased activity and higher spends during the first half of the year.
We expect Pioneer stock to perform in line with the broader market and maintain our long-term Neutral recommendation. The company holds a Zacks #3 Rank, which is equivalent to a short-term Hold rating.
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