Pioneer Natural Resources is a large independent oil and natural gas company, with resources throughout the US—in south Texas, the Rockies and Mid-Continental regions, the Barnett shale, and in Alaska’s Oooguruk field. The company also is one of the most active drillers in Texas’ Spraberry/Wolfcamp oil field in the Permian Basin. Covering nine counties, the Spraberry field produces sweet crude and gas from formations between 6,700 and 11,000 ft below the ground. Pioneer is also in the early stages of a new horizontal drilling program in the Wolfcamp shale interval of the Spraberry field.
In a recent interview, Pioneer’s Tom Spalding, vice president, geoscience, explained, “Pioneer is a major operator in the Spraberry vertical and the horizontal Wolfcamp shale—in the center of the basin.”
The company is interested in drilling deeper in the Spraberry, targeting the Strawn, Atoka, and Mississippian. “In fact,” said Spalding, “Vertical wells with multistage completions that include these deeper zones accounted for about 65% of our 2012 vertical drilling program.”
Pioneer boasts one of the largest acreage positions in the Permian Basin, approaching 900,000 acres—and it is highly leased up. “We also have a big push on with unconventional horizontals drilling into source rock—the Wolfcamp, which is the major source rock in the area,“ said Spalding. “The beautiful thing about the Midland basin Wolfcamp formation is it just happens to be in the right window—buried to the right depth and exposed to the proper temperatures—so that over time the kerogen has ‘cooked’ so it is converted to oil (liquids).”
This “right window” underlies across the Permian Basin, where the Wolfcamp is a thick formation—the source rock—underneath other formations, such as the Spraberry. Pioneer has been drilling its southern 200,000 acres first, to hold some expiring leaseholds. “The Wolfcamp is a little shallower there,” he said.
Deeper drilling in the Spraberry, targeting the Strawn, Atoka, and Mississippian, accounted for 65% of Pioneer’s 2012 vertical drilling program. All these formations lie beneath the Wolfcamp, which lies beneath the Spraberry. The deeper drilling provides the potential to add up to 100,000 BOE (in addition to the 140,000 BOE obtained from the commingled Spraberry and Wolfcamp).
One of the key elements pointing to Pioneer’s success is that its vertical integration aids in substantially improving returns. This integrated services model was expanded into the Spraberry field in early 2010. In April 2012, Pioneer purchased Carmeuse Industrial Sands for about USD 297 million. The sand company’s name was changed to Premier Silica. It has a sand mine in Brady, Texas (nicknamed, appropriately, “The Heart of Texas”), and provides the proppant Pioneer uses in the Spraberry, Wolfcamp, and Barnett shales.
Pioneer also conducts its own hydraulic fracturing, using Pioneer Pumping Services for water, chemicals, and pumping supply. Assembling all the elements required to conduct an entire hydraulic fracturing job at any given drillsite happens in less than 24 hours. Drilling and completing a Pioneer well involves almost no NPT (nonproductive time), which greatly improves the wells’ economics.
In addition, Pioneer Well Services’ growing group in Midland, Texas, supports Permian Basin operations. Pioneer owns a vast array of equipment, including drilling rigs, vertical and horizontal fracturing fleets, pulling units, coil tubing units, cement units, reverse units, hot oilers, water tanks, blowout preventers, construction equipment, and fishing tools. The company has a team of rig operators; floorhands and derrickhands; rig mechanics; onsite fishing tool/reverse rig supervisors and tool dressers; hot oil, transport, and winch truck drivers; and heavy equipment operators to operate this equipment.
To accelerate development and appraisal, Pioneer is in the midst of offering a 33% to 50% working interest in its 200,000 acres in the southern portion of the Midland basin. This large, contiguous acreage position is located in Upton, Reagan, Irion, and Crockett counties. Liquids content is estimated to be around 90%, with a greater than 2.0‑billion‑bbl gross resource potential.
Current Permian Basin Activity |
Energen’s oil and gas subsidiary, Energen Resources Corporation, plans to invest approximately USD 900 million in 2013, including some USD 745 million to continue developing the company’s vertical Wolfberry play in the Midland basin, the horizontal Third Bone Spring sand in the Delaware basin, and its conventional and waterflood properties in the Central basin platform. Another USD 130 million will be deployed largely to test the horizontal Wolfcamp and/or Cline potential in the Midland basin and the horizontal Wolfcamp potential in the Delaware basin. Energen also expects to drill several wells in the Delaware basin to test the vertical Wolfbone play. In response to continued low gas prices, Energen says, it does not plan to invest drilling capital in any of its dry gas basins. EOG Resources has increased liquids weighting in its North American revenue mix, with crude oil contributing close to 80% of its revenues, more than 6% stemming from natural gas liquids (NGLs), and only 14% from dry natural gas. The company owns around 240,000 total net acres in the Permian Basin. With Leonard shale reserves estimated at around 430 million BOE/well and a USD-5.5-milion cost of well completion (CWC) as its target, EOG has drilled 42 and completed 39 horizontal Leonard net wells to date in a two-rig program. The company states “recent well results indicate upward reserve potential.” In the Wolfcamp shale, EOG’s core area potential is around 430 million BOE/well, with a USD-5.3-million CWC target. The company has drilled 130 and completed 103 horizontal net Wolfcamp wells to date in a four-rig program. A typical Leonard well yields 41% oil, 31% NGLs, and 28% gas, with Wolfcamp wells yielding 42% oil, 30% NGLs, and 28% gas. In the near future, EOG’s focus is on continuing to define multiple zones across the Wolfcamp and Leonard. Apache has production diversified throughout the US, Argentina, Australia, the North Sea, Egypt, and Canada. Of its total third-quarter 2012 production of 771 million BOE/D, 41% originated in the US and 14% originated specifically in the Permian Basin. According to Bentek Consulting, as of September 2012, Apache was the Permian’s top operator, with 34 active rigs, with Pioneer second at 31. Apache controls 1.1 million acres across the Midland basin. The company believes it has “decades of growth ahead across plays, from vertical Wolfberry to Cline and Wolfcamp shales.” The Midland basin vertical activity, with multistacked vertical pays, was the most active Apache drilling area in 2012, with more than 3,000 ft of productive section—Spraberry through Fusselman pay zones. Advantages the company points to are predictable drilling results. Upsides it is pursuing include the following:
Apache drills and completes a Midland stacked vertical well for around USD 2 million, with EURs of 144,000 BOE (82% liquids). The company drills and completes a Spraberry vertical well for about USD 1.4 million, with an EUR of 127,000 BOE (68% liquids). Range Resources has around 100,000 net acres in the Midland basin, 91% held by production, in the Wolfberry and Cline shales. Its 200 to 300 locations at 20-acre spacing in the Wolfberry (vertical wells) are delivering a 50% return at current strip pricing. All 100,000 Cline shale acres are prospective, with 2,000 possible horizontal well locations at 50-acre spacing. Range’s stated cost to drill and complete a Cline shale well is around USD 4.3 million. Cost to drill and complete a west Texas Wolfberry vertical well is about USD 2.6 million. EP Energy has 983 Wolfcamp Midland basin drilling locations. Of its 2012 capital budget of USD 1.5 to USD 1.6 billion, 13% (around USD 204 million) was allocated to the Wolfcamp. More than 90% of the total budget was allocated to oil-focused key programs. During the year, EP Energy added a second rig in the Wolfcamp. The plan for 2012 was to drill 15 wells in its 138,000 total Wolfcamp net acres. The company is now in full development of the Upper Wolfcamp, with plans to delineate the Lower Wolfcamp in 2013. While current economics are based on the Upper Wolfcamp, there will be further upside from deeper areas (such as the Cline). With assets in the US Gulf of Mexico, the UK, Trinidad and Tobago, Algeria, Pakistan, and Australia, BHP Billiton is also a major player onshore US, with around 270,000 BOE/D in production from the Eagle Ford, Fayetteville, Haynesville, and Permian areas. BHP Billiton states it has significant positions in two of the largest oil field developments in the world—the Eagle Ford (#1 in the world) and the Permian Basin (#3 in the world), which are forecast to be the two largest drivers of US oil production growth through 2017. The company holds more than 400,000 acres in the Permian and is actively appraising for potential development. |