Pioneer will keep curtailed oil output shut in at current prices

Houston — Permian Basin pure-player Pioneer Natural Resources posted a larger losses than expected during Q2 2020, and company executives plan to continue voluntary production curtailments, particularly in legacy wells.

"We have brought back very little of curtailed production," CEO Scott Sheffield said during the company's Aug. 5 earnings call. "These are higher-costs vertical wells. We started plugging some of these in last year and we don't see them coming back online."

The company's original shut-in volumes were small, roughly 7,000 b/d during Q2, with most being vertical wells with higher operating costs, the company said in a statement. Pioneer said it expects to keep curtailing 6,000 b/d of that volume, bringing back 1,000 b/d of production, because of the "current commodity price environment." On Aug. 4, NYMEX WTI crude futures settled at $41.70/b.

Most producers had shut in some production in Q2 after oil prices plummeted in early March, eventually dropping to $20s/b before starting to inch higher in mid-May. A large chunk of the roughly 2 million b/d of US shut-in production has been brought back, and restoration plans continue through Q3.

In Q2, Pioneer produced a total 375,000 barrels of oil equivalent per day, including 215,000 b/d of oil, compared with 334,200 boe/d of total production in Q2 2019, including 207,400 b/d of oil.

For Q3, Pioneer expects its total production at 341,000-356,000 boe/d, 7% lower than Q2 at midpoint, while it has forecast oil output at 191,000-201,000 b/d, or 9% lower than Q2.

The company also anticipates full-year 2020 total production of 356,000-371,000 boe/d and between 203,000-213,000 b/d of oil output, 3% lower at the midpoint than in Q2 for both.

Pioneer has left other guidance unchanged. Its capital budget remains at $1.3 billion-$1.5 billion, plus $100 million for water infrastructure.

The company expects to operate an average of five to eight horizontal drilling rigs in the Midland Basin, which is the eastern part of the Permian Basin of West Texas, down from 22 rigs at the start of 2020. Pioneer in mid-March said it planned to cut its fleet by half. The company instead announced five to eight in May.

Production falls

Oil and gas production across the Permian's Midland looks slower to recover than other US oil-rich shale plays. After averaging 3.9 Bcf/d in March, when global demand for oil and gas began to plunge, associated dry gas production in the sub-basin fell 400 MMcf/d by May, according to S&P Global Platts Analytics. Under the current drilling and completion regimen, it is not expected to climb above 3.7 Bcf/d until the end of 2021.

Oil has seen a similar decline, falling from 2.2 million b/d in March to 1.9 million b/d. It is not forecasts to eclipse 2 million b/d again until January 2022.

US production cuts have been largely concentrated in the Permian Basin, which has lost just under 300 rigs since March, according to Enverus. With less crude supplied to the market, oil prices have found some stability in the low $40/b range, encouraging producers to return a few rigs to the Permian in recent weeks.

The Permian has gained seven rigs since mid-July to bring the basin's total rig count to 138 as of July 31.

Total Permian gas production also rebounded in July, averaging 11.5 Bcf/d, 600 MMcf/d above the June average, according to Platts Analytics' data.

Even if prices bounce ahead of where they were prior to the global crude collapse, Pioneer plans on maintaining the same rate of production growth.

"We expect to boost growth by 5% in 2021," Sheffield said. "Moving forward, we are expecting 5-plus percent per year growth. Some years it may be 6% or 7%. Some years it may be 4%. But say we get $60 or $70/b oil, we still do not plan on changing our production growth outlook."