Pioneer Natural Resources Company has announced its financial and operating results for the quarter ended December 31, 2014.
Pioneer reported fourth quarter net income attributable to common stockholders of US$431 million, or US$2.91 per diluted share. Without the effect of noncash derivative mark-to-market gains and other unusual items, adjusted income for the fourth quarter was US$116 million after tax, or US$0.80 per diluted share.
Fourth quarter and other recent highlights included:
- Producing 201 thousand barrels oil equivalent per day (MBOEPD) from continuing operations in the fourth quarter, an increase of 15 MBOEPD, or 8%, compared to the third quarter of 2014 (reflects Barnett Shale and Hugoton divestitures as discontinued operations); oil production increased 12 thousand barrels per day (MBPD) quarter over quarter, or 13%; fourth quarter production growth was primarily driven by the company’s successful Spraberry/Wolfcamp horizontal drilling programme.
- Producing 182 MBOEPD from continuing operations in 2014 (reflects Alaska, Barnett Shale and Hugoton divestitures as discontinued operations), an increase of 18% from 2013 on a comparable basis; this strong annual production growth was primarily related to the Company’s successful Spraberry/Wolfcamp (+26%) and Eagle Ford Shale (+23%) drilling programmes; oil production increased 18 MBPD year-over-year, or 25%.
- Delivering 239% drillbit reserve replacement in 2014 by adding proved reserves of 177 million barrels oil equivalent (MMBOE) from discoveries, extensions and technical revisions of previous estimates at a drillbit finding and development cost of US$19.65/ boe (excludes revisions of previous estimates of 39 MMBOE of proved undeveloped (PUD) reserves related to vertical drilling locations in the Spraberry/Wolfcamp that are no longer expected to be drilled, 12 MMBOE of positive pricing revisions and acquisitions of 2 MMBOE); the drillbit finding and development cost for horizontal reserve additions was US$15.51 per BOE.
- Maintaining a strong year-end balance sheet with US$1.0 billion of cash on hand, net debt-to-operating cash flow of less than 1.0 times and net debt-to-book capitalisation of 16%.
- Placing 36 Wolfcamp Shale wells on production in the A, B and D intervals during the fourth quarter in the northern Spraberry/Wolfcamp; for each interval, the fourth quarter wells are outperforming the average of all previously drilled wells in that interval.
- Continuing the Company’s successful downspacing and staggering program in the Eagle Ford Shale, which included placing 16 horizontal wells on production in Upper targets during the fourth quarter.
- Exporting approximately 10 MBOEPD gross (3.5 MBOEPD net) of Eagle Ford Shale condensate during the second half of 2014 with significantly improved pricing compared to domestic condensate sales; approximately 20 MBOEPD gross (7 MBOEPD net) of Eagle Ford Shale condensate has been committed for export during 2015 under two contracts.
Pioneer’s current outlook for 2015 is summarised below:
- In response to the current low oil price environment and reduced margins, Pioneer is significantly reducing spending and is focusing on optimising returns, capital efficiency and production by high-grading drilling activity in the best areas of the Spraberry/Wolfcamp and Eagle Ford Shale; this will preserve the company’s strong cash position and balance sheet until margins improve.
- Pioneer is reducing horizontal drilling activity in the Spraberry/Wolfcamp and Eagle Ford Shale to 16 rigs by the end of February (approximately a 50% reduction from year-end 2014); this will include six rigs in the northern Spraberry/Wolfcamp, four rigs in the southern Wolfcamp joint venture area and six rigs in the Eagle Ford Shale; vertical drilling in the Spraberry/Wolfcamp area is being shut down by the end of February.
- Infrastructure projects, including construction of the Spraberry/Wolfcamp area water system and expansion of the Brady sand mine, will be slowed down.
- The reduction in drilling activity and infrastructure build-out results in planned capital expenditures of US$1.85 billion for 2015, a 45% reduction from 2014 capital spending for continuing operations; US$1.6 billion will be for drilling and the remaining US$0.25 billion will be for water infrastructure, vertical integration and facilities.
- The 2015 capital programme is expected to be funded from operating cash flow of US$1.7 billion (assuming commodity prices of US$55 per barrel for oil and US$3.00 per thousand cubic feet (MCF) for gas) and cash on hand of US$1.0 billion at year-end 2014.
- Production growth from continuing operations for 2015 is forecasted to be 10%+ compared to 2014 based on the $1.85 billion capital budget and the high-graded drilling program; growth is primarily weighted to the first half of the year, with production in the fourth quarter of 2015 expected to be essentially flat with production in the fourth quarter of 2014; oil production is forecasted to increase by 20%+ in 2015 compared to 2014.
- The Company expects to aggressively improve margins through cost reductions and efficiency gains; a 10% decrease in drilling costs has already been realised in 2015 compared to 2014; this decrease is expected to be at least 20% by the end of the year compared to 2014.
- Pioneer is prepared to add horizontal rigs later in 2015 in response to reduced costs and/or an improvement in the oil price environment.
- Divestment of the Eagle Ford Shale Midstream business continues to be pursued.
- The Company’s cash flow is protected by derivatives, including (i) coverage for 2015 forecasted oil production of approximately 90% with most volumes protected by swaps at US$71 per barrel, (ii) a significant portion of 2016 oil production being covered by three-way collars that provide attractive downside protection and (iii) coverage for 2015 forecasted gas production of approximately 90% with three-way collars that provide attractive downside protection.
Scott D. Sheffield, Chairman and CEO, stated, “The Company delivered another great operational quarter, with strong production growth being driven by impressive horizontal well performance in the Spraberry/Wolfcamp. We also achieved the substantial second half 2014 production growth that we forecasted early last year, successfully transforming our Spraberry/Wolfcamp acreage position from a vertical play into a world-class horizontal play.”
“In response to the current low oil price environment and reduced margins, we are preserving our strong cash position and balance sheet by reducing drilling activity and related infrastructure spending until margins improve significantly. Even with this slowdown, we will be able to continue to prudently develop and grow our industry-leading positions in the Spraberry/Wolfcamp and Eagle Ford Shale plays during 2015 by focusing our drilling activity in the best areas of both plays. As a result of our strong balance sheet, planned Eagle Ford Shale Midstream sale and strong derivatives position, Pioneer has the financial flexibility to prudently manage through a protracted oil price downturn or quickly ramp up drilling activity when margins improve.”
Adapted from a press release by David Bizley