Pioneer explains effects of 2018 changes, outlines impact on 2019

By Luke Geiver | February 18, 2019

Pioneer Natural Resources is proving it knows how to streamline shale operations to match the evolving practices and expectations guiding the financial trends and success rates of the shale world’s prominent operators.

Although the Permian pure-play operator has reduced drilling, completion and facilities capital by 11 percent, it has been able to increase production by up to 17 percent.

“We embarked on many initiatives during 2018 to permanently streamline the portfolio and increase corporate level returns,” said CEO Timothy Dove. “Throughout the year, the company diligently worked to divest non-core acreage and focused our efforts on drilling high-return horizontal Permian wells.”

Pioneer has shifted to in-basin sand for its well, turning to 100 mesh West Texas sand. The company has also sold its pressure pumping segment and instead formed contracts with the company that acquired its assets.

Along with its shift to in-basin sand, and contracted pressure pumping agreements, Pioneer has also made big moves in returning capital to shareholders. In February last year, Pioneer increased its semiannual cash dividend to shareholders from $0.04 cents per share to $0.16/share, an increase of 300 percent. This year, Pioneer will increase the dividend by 700 percent, providing a $0.32/share number.

Some of the success of Pioneer in the past year can be attributed to its well productivity increase as well. The company has incorporated data from machine learning into completion designs. According to the company’s operations team, well design and operation plans are better understood across the reservoir now than in previous years. The operations and completion teams have a good understanding of what is needed to complete Permian wells, they believe.

The new understanding is helping Pioneer embark on an ambitious multiwell pad development program this year. Roughly 40 percent of the company’s 2019 projects will include four or more wells, compared to only 10 percent in 2018. The company said many of the projects will utilize “Pioneer Pads,” that enable 24 wells to be drilled and completed on the same pad.

This year the company will spend a range of $2.8 to $3.1 billion on drilling, completion and facilities costs. There has been no sign of cost inflation, according to the company. Workforce restrictions will impact costs and drilled but uncompleted wells across the basin will be dealt with as soon as greater oil and gas takeaway capacity comes online soon.

Dove said the company is focused on investor returns and value over oil production growth. Pioneer will run 21 to 23 rigs with five rigs in its southern acreage joint venture area. It is possible Pioneer will bring more wells online this year than last, according to estimates provided by the company. Each well has an estimated 1.6 million barrel of oil equivalent estimated ultimate recovery when drilled at 9,800 feet. The Wolfcamp B will garner 45 percent of the capital deployed, followed by the Wolfcamp A formation, the Spraberry and then others not listed by the company.

The changes to sand sourcing, pressure pumping, and water handling made in 2018 help Pioneer generate a 9 percent corporate return per acre, roughly three percent higher than its peers.