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pioneers view on the eagleford

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    Pioneer Natural Resources PXD is skewing its 2010 capital spending to liquids-rich prospects to take advantage of the current pricing advantage of oil over natural gas. We like how Pioneer has the flexibility to shift drilling plans to liquids-rich Spraberry Trend properties in West Texas, where 85% of production is oil or natural gas liquids, and to Eagle Ford Shale prospects in South Texas, where liquids account for 55-65% of the revenue stream. The firm plans to spend $800 to $900 million in 2010 to drill Spraberry and Eagle Ford Shale wells, and some wells in Alaska and Tunisia. The firm may consider drilling more natural gas wells if gas prices improve in 2010. Based on accelerated drilling plans for 2010, Pioneer plans to boost year-end 2010 production by 10% over year-end 2009 levels.
    Pioneer has a scale advantage as a major Spraberry acreage holder with over 20,000 drilling prospects on 900,000 acres. About 75% of Pioneer's drilling leases are already held by production with no lease expiration issues. This gives Pioneer room to accelerate drilling plans with a goal of 425 new wells in 2010, 700 wells in 2011 and to 1,000 wells in 2012 and 2013. To achieve these drilling goals Pioneer plans to boost the number of drilling rigs in the Spraberry from eight rigs running in late 2009 to 14 rigs in January 2010, 19 rigs by mid-2010 and 24 rigs by year-end 2010. Pioneer can also use its scale to negotiate lower-cost drilling and service costs. The firm cut wells costs by 30% from $1.5 million per well in 2008 to $1.0 million in late 2009. Pioneer owns some services and equipment including fracturing and saltwater disposal services to help defray costs. The firm is also targeting new Wolfberry Trend zones at Spraberry wells and testing secondary recovery at mature wells using waterfloods. Based on long-term drilling plans, Pioneer estimates Spraberry production to grow from 29,000 barrels of oil equivalent per day (boe/d) in late 2009 to 34,000 boe/d by the fourth quarter of 2010 to 60,000-66,000 boe/d by 2013.

    At Eagle Ford Shale properties in South Texas, Pioneer is still in the early stages of development. Initial drilling success in 2009 prompted Pioneer to add a second drilling rig in 2010. The firm is currently drilling in Live Oak County in Texas, but plans to shift to Dewitt County and add a second rig to Karnes County to determine the potential of Pioneer's acreage along the Edwards Shelf Margin trend line. Pioneer has over 300,000 acres in the Eagle Ford, and is looking for a joint venture partner to accelerate development. Given the early stage nature of Pioneer's Eagle Ford Shale well, we'll hold off from adjusting our model until we see more drilling results.
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