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Pioneer Natural Resources has 10 more years of drilling its best inventory: CEO

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A large inventory helps avoid well interferences, CEO says

Pioneer owns 680,000 net acres in eastern Permian Basin

Most company wells are spaced around 850 feet apart

Houston — Permian Basin producer Pioneer Natural Resources has about 10 years of drilling inventory on its best acreage at its current pace without having to resort to less productive areas, the company's top executive said Wednesday.

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That amount of choice acreage also helps the company avoid the downspacing issues some Permian companies have disclosed recently, Pioneer CEO Scott Sheffield said in webcast remarks at the Barclays CEO Energy-Power Conference 2019 in New York.

"We're drilling our best [inventory] but we don't have to downspace," Sheffield said about his company's acreage in West Texas, in the eastern part of the Permian known as the Midland Basin where it is the biggest producer. "We'll be drilling our best for a long period of time."

Pioneer expects to drill and produce 265 to 290 wells this year, compared with 270 wells produced in 2018.

The company, which owns 680,000 net acres in the Midland Basin, produced 330,000 b/d of oil equivalent in the second quarter, including 206,000 b/d of crude oil.

That is a little under 10% of the current total 2.245 million b/d of crude production from that basin, and about double its 1.14 million b/d in September 2016, according to estimates by S&P Global Platts Analytics.

The entire Permian Basin, which also includes far west Texas and southeast New Mexico, now produces about 4.4 million b/d of oil, up from 2 million in the same time frame, Platts estimates.

Downspacing, or drilling wells closer together, has been a feature of unconventional well drilling for many years as upstream companies try to eke the most oil and gas out of their acreage without well interference. However, sometimes if wells are spaced too closely that causes productivity issues.

COMPANIES LACKING INVENTORY LIKELY NEED TO DRILL CLOSER WELLS

Companies that lack sufficient inventory likely need to downspace to see how many wells they can place on limited acreage and still maximize oil and gas volumes, Sheffield said.

"In most cases [the wells] are probably economic ... but it does affect the parent when you downspace with a child well," he said.

So-called "parent" wells are older wells, while "child" wells are the newer wells drilled between them to get more oil and gas that was not drained with the older wells. Typical spacing for Pioneer peers is 600 feet or even less.

Pioneer is largely spacing at 850 feet between wells, Sheffield said. The company tested 500-foot spacing in 2014, but saw interference at that level, so it moved to 850-foot spacing in "pretty much" all zones where it drills.

Like most Permian operators, Pioneer drills in several productive subsurface zones such as the Wolfcamp and the Spraberry. In the western part of the Permian known as the Delaware Basin, which includes southeast New Mexico, there are other zones such as the Avalon and the Bone Spring where operators drill.

Pioneer is exclusively a Midland Basin operator, while many operators prefer the Delaware or operate in both areas. The Delaware is a deeper basin, where comparable zones may be hundreds of feet deeper than the Midland. The extra depth carries a higher development cost, Sheffield pointed out.

The Delaware's oil is also lighter, 45-50 degrees API gravity, which is currently trading at a discount of 50 cents/b to $1.50/b, he added. In contrast, Midland oil is around 38 to 44 degrees API gravity and receives more premium pricing.

In addition, the Delaware is a gassier basin with lower oil cuts on average than the Midland, and wells produce more water, Sheffield said.

"Reduced water cuts drive lower produced water expense" in the Midland, he said. "In the Delaware there is a 50% greater water cut, resulting in higher expenses for produced water."

-- Starr Spencer, starr.spencer@spglobal.com

-- Edited by Richard Rubin, newsdesk@spglobal.com