Pioneer Natural Resources announces $1.7 billion horizontal Wolfcamp shale transaction with Sinochem
DALLAS -- Pioneer Natural Resources Company announced that the Company has signed an agreement with Sinochem Petroleum, a U.S. subsidiary of the Sinochem Group, to sell 40% of Pioneer’s interest in approximately 207,000 net acres leased by the company 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.
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 boepd in 2012, with a year-end exit rate of approximately 5,000 boepd.