Pioneer Natural Resources announces $1.7 billion horizontal Wolfcamp Shale transaction with Sinochem

Thursday, January 31, 2013
  • The transaction is expected to close during the second quarter of 2013, subject to customary governmental approvals.
  • In addition to funding its own drilling obligations for the horizontal Wolfcamp Shale, Sinochem has agreed to fund 75% of Pioneer's portion of drilling and facilities costs after closing until the $1.2 billion of drilling carry is fully utilized.

Pioneer Natural Resources Company (NYSE:PXD) announced that the Company has signed an agreement with Sinochem Petroleum USA LLC, a U.S. subsidiary of the Sinochem Group ('Sinochem'), to sell 40% of Pioneer's interest in approximately 207,000 net acres leased by the Company ('joint interest area') in the highly prospective horizontal Wolfcamp Shale play in the southern portion of the Spraberry Trend Area Field for a total price of $1.7 billion. At closing, Sinochem will pay $500 million in cash to Pioneer, before normal closing adjustments, and will pay the remaining $1.2 billion by carrying a portion of Pioneer's share of future drilling and facilities costs ('drilling carry').

The transaction is expected to close during the second quarter of 2013, subject to customary governmental approvals. Under the agreement, Sinochem will acquire approximately 82,800 net acres of leasehold held by Pioneer for all Wolfcamp depths and deeper horizons. Pioneer retains 60% of its interest in the Wolfcamp depths and deeper horizons, with Sinochem receiving 40% of Pioneer's interest. Pioneer will continue as operator and will conduct all leasing, drilling, completion, operations and marketing activities in the joint interest area. The joint interest area covers defined portions of Upton, Reagan, Irion, Crockett and Tom Green Counties in Texas. Pioneer retains its current working interests in all horizons shallower than the Wolfcamp horizon.

In addition to funding its own drilling obligations for the horizontal Wolfcamp Shale, Sinochem has agreed to fund 75% of Pioneer's portion of drilling and facilities costs after closing until the $1.2 billion of drilling carry is fully utilized. Pioneer has six years to utilize the drilling carry, subject to extension under certain circumstances. At closing, Sinochem will pay its 40% share of net expenditures in the joint interest area from the December 1, 2012 effective date of the transaction to the closing date. Pioneer and Sinochem have agreed to a development plan which forecasts the drilling of 86 horizontal Wolfcamp Shale wells during 2013, increasing to 120 wells in 2014 and 165 wells in 2015.

To the extent Sinochem elects to participate in any vertical wells that are drilled in the joint interest area after the effective date, Sinochem will receive its share of production and costs from the Wolfcamp and deeper horizons based on the anticipated reserve contribution from the Wolfcamp and deeper intervals relative to anticipated reserves from all completed intervals. Pioneer's and Sinochem's participation in vertical wells will be based on each party's interest without any drilling carry being applied. Pioneer will retain 100% of its existing vertical production in the joint interest area.

Pioneer has successfully drilled and completed 39 horizontal wells in the Wolfcamp Shale joint interest area through December 31, 2012. Of these 39 wells, 22 wells were on production and 4 additional wells were flowing back. Of the 22 wells on production, 20 wells were completed in the B interval and 2 wells were completed in the A interval. Pioneer's net horizontal Wolfcamp Shale production in the joint interest area averaged approximately 2,000 barrels oil equivalent per day (BOEPD) in 2012, with a year-end exit rate of approximately 5,000 BOEPD.

Scott Sheffield, Chairman and CEO, stated, 'We are very excited to work with Sinochem, a global energy and chemicals leader, in the southern horizontal Wolfcamp Shale area, and are pleased that they share our confidence in accelerating the development of this large, oil-rich acreage position. This accelerated development will add significant production and reserves for Pioneer while enhancing shareholder value. It will also reduce our country's dependence on foreign oil imports, create thousands of new U.S. jobs, further stimulate the Permian Basin economy and add significant tax revenues for use by local communities, schools, the state and the nation.'

Consistent with the announced transaction with Sinochem, the responsibilities for certain Executive Vice Presidents (EVPs) who are members of Pioneer's Management Committee will be rebalanced. These changes are effective immediately.

William F. Hannes, formerly EVP South Texas Operations, will become EVP of the newly formed Southern Wolfcamp Asset Team. This asset team will focus on executing the drilling program in the horizontal Wolfcamp Shale joint interest area.

Danny L. Kellum, EVP Permian Operations, will focus his attention on Pioneer's remaining Permian activities, with executive responsibility for the Permian Asset Team and Permian integrated services. This asset team will focus on executing the horizontal and vertical drilling programs over the remainder of Pioneer's Permian acreage.

Jay P. Still, EVP Domestic Operations, will add executive responsibility for Pioneer's South Texas operations to his current responsibilities for the Company's Mid-Continent, Rockies, Alaska and Barnett Shale assets.

BofA Merrill Lynch served as financial advisor and Vinson & Elkins LLP served as legal advisor to Pioneer on the transaction.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser. More

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