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PXD Divests Wolfcamp Shale Stake

Zacks Equity Research

Pioneer Natural Resources Company (PXD) has divested a portion of its acreage in the highly prospective horizontal Wolfcamp Shale play to Sinochem Petroleum USA LLC – the U.S. subsidiary of Sinochem Group.

Pioneer divested 40% (around 82,800 net acres) of its holding in about 207,000 net acres in the southern portion of the Spraberry trend area field of Wolfcamp Shale for $1.7 billion to Sinochem. The joint interest area includes defined portions of Upton, Reagan, Irion, Crockett and Tom Green Counties in Texas. Pioneer retained its current working interest and operatorship in all horizons shallower than the Wolfcamp horizon.

Of the total deal price, Sinochem paid $631 million in cash to Pioneer, of which $522 million was the up-front portion and $109 million was Sinochem's 40% share of net expenditure in the joint interest area from the Dec 1, 2012 effective date of the deal to the closing date. An additional amount of $1.2 billion was carried over and will be adjusted with its future drilling and facilities costs.

Pioneer Natural Resources is a large independent oil and gas exploration and production company, headquartered in Dallas, Texas, with operations in the U.S. The company’s oil-weighted reserves base and large drilling inventory (over 20,000 liquids rich drilling locations in low-risk resource plays) with significant resource potential are catalysts to unlock value for shareholders. The company offers a deep inventory of high-return, liquids-leveraged drilling opportunities.

The company has estimated its 2013 production growth in the range of 38 thousand barrels of oil equivalent (MBoe) per day to 42 MBoe per day, reflecting an increase of 36% to 50% from the 2012 level.

However, the company’s long-term production and reserve growth depends on its acquire-and-exploit model, to a certain extent. Pioneer may therefore find it difficult to complete accretive transactions in the future, which could negatively impact its growth rate.

Pioneer Natural Resources’ currently retains a Zacks Rank #3 (Hold), implying that it is expected to perform in-line with the broader U.S. equity market over the next one to three months. However, there are other companies in the energy sector that are expected to significantly outperform the equity markets in the next one to three months. These include the Zacks Rank #1 (Strong Buy) stocks of EPL Oil & Gas, Inc. (EPL), Abraxas Petroleum Corp. (AXAS) and Enerplus Corporation (ERF).

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