ConocoPhillips, Pioneer see Q2 production from major H1 2021 acquisitions

Big upstream operators ConocoPhillips and Pioneer Natural Resources project their respective company production growth to continue at a modest low-to-mid-single-digit clip this year, even after major acquisitions in the Permian Basin of West Texas/New Mexico, their top executives said Aug. 3.

Pioneer's production in Q2 shot up 68% year on year to average of 629,500 boe/d after the acquisitions of Parsley Energy in January and DoublePoint Energy in May, Pioneer said. Sequentially, the increase was 15% in second-quarter 2021 on an absolute basis thanks to the two sizable major transactions.

Pioneer's oil output in Q2 averaged 363,000 b/d, an amount that rose 69% year on year and 29% sequentially.

"We're not looking at any more Midland Basin large acquisitions," Pioneer CEO Scott Sheffield said during his company's call. "We bought the best two [operators] available."

Sheffield called the acquisitions "highly accretive" and said they added significant Tier 1 or top-drawer inventory.

The company's oil production should average 351,000-366,000 b/d in 2021 and total production, 605,000-631,000 boe/d.

Efficiency improvements

Operational Pioneer's synergies from both acquisitions continue to progress. Drilling and well completion efficiencies improved in Q2, with an increase of greater than 65% drilled feet per day compared to 2017 averages and also 75% more completed feet per day in the same time frame, Joey Hall, Pioneer's executive vice president of operations, said.

Pioneer's 2021 drilling, completions and facilities capital budget is expected to remain at a previously stated $3.1 billion-$3.4 billion, including $100 million and $50 million for integration expenses related to the acquisitions of Parsley and DoublePoint, respectively.

Pioneer plans to operate 22 to 24 horizontal drilling rigs in the Permian Basin, including one average rig in the Delaware Basin – the western part of the Permian Basin.

Historically, the company has operated exclusively in the Midland Basin, which is the eastern part of the Permian; currently 95% of company targets are in the Midland. Right now the company is running 24 rigs and eight hydraulic fracturing fleets in the Midland.

However, "the returns look tremendous" in the Delaware, and the higher oil prices the Delaware closes any gap in economics, Sheffield said.

"This inventory moves up significantly in the $60-$70/b versus the $40-$50/b range" of oil prices, he said.

Benefits of Simul-Frac

Also, Pioneer continues to see the benefits of using Simul-Frac technology and plans to run two specific fleets devoted to that technology during the second half of 2021. Simul-Frac allows stimulation of more hydraulic fracturing stages or intervals across multiple wells at the same time, using a single fleet.

This enables reduced days on location and maximizing gains in lateral footage, getting oil out of the ground faster, according to oilfield service provider Halliburton's website.

Despite the benefits of that technology, there are currently limiting factors on how many fleets can be used, Hall said.

One is logistics, particularly around water, he said. "We basically doubled the water requirements" in the area where Simul-Frac was used, he said. If the technology were applied to all its fracturing fleets, "we'd have to spend a significant amount of capital to upgrade our water systems, and of course, logistics around sand."

But "the other, maybe more trivial matter" is the number of wells per pad, Hall said. "If you have an odd number of wells on the pad it can have a slight impact on the efficiency," he said. "We want to make sure we're efficiently deploying capital" and getting the maximum efficiency for money spent.

ConocoPhillips' boost from Concho buy

ConocoPhillips posted Q2 adjusted output of 1.547 million boe/d which includes roughly 300,000 boe/d from its purchase of Concho Resources earlier this year. The company's adjusted production increased 46,000 or 3% from the same period in 2020.

The company projects its production growth in the low single-digits in 2021 and in June outlined 3%/year overall output growth through the next 10 years, while reaping 5% from Lower 48 operations.

ConocoPhillips' Q2 2021 production from its Lower 48, chiefly its "Big Three" resource plays, averaged 794,000 boe/d. That included 435,000 boe/d from the Permian Basin of West Texas/New Mexico, 227,000 boe/d from the Eagle Ford Shale of South Texas and 95,000 boe/d from the Bakken Shale of North Dakota.

In contrast, the company produced 715,000 boe/d from the Lower 48 in the first quarter, but that included an impact from harsh winter weather in February.

For the third quarter, the company's total output is projected at 1.48 million boe/d to 1.52 million boe/d, taking into account seasonal turnarounds planned for Alaska and Asia-Pacific. The forecast excludes Libya and assumes previously announced divestitures close the quarter.

As inflation spreads through the greater US economy, companies have begun to see it also show up in oilfield materials that include for tubulars, cement in the Lower 48, and some pressure on "frac" crews, said Dominic Macklon, ConocoPhillips' senior vice president of strategy and technology, during his company's Q2 results call.

Most large companies say efficiencies and bulk buying help offset the higher costs. "We're still seeing deflation in certain categories internationally," Macklon said. "We still have the momentum coming out of the [Concho] transaction; we do think we're well placed to manage inflationary effects."