Posted on July 16, 2019
Pioneer Natural Resources and other shale producers are having their high-flying wings clipped by investors concerned that the producers were spending far more than they were earning.
Now, Pioneer is on a mission to show it – and the other producers – can generate profits as well as crude oil and natural gas. That includes an extreme belt-tightening regimen that saw the company cut a quarter of its workforce, including 160 employees in the Permian Basin. The layoffs and slowdown in activity has raised questions about the company’s future in the region.
Investors’ frustration with the lack of cash flow has cost the company its growth investors, Pioneer Chief Executive Officer Scott Sheffield told the Wall Street Journal in a recent interview.
Also put on the back burner is the goal of producing a million barrels of oil equivalent a day by 2024.
“Our 1 million in 10 plan was an aspirational goal based on the quality of our assets in the Midland Basin. Any number of factors outside of our control – commodity prices, third-party infrastructure development, market expectations, etc. – had the potential to affect the 10-year timeline. The important thing to remember is that our asset base is capable of producing 1 MMBOED or more. We expect to reach 1 MMBOED in the future but we won’t be committed to a specific timeline,” Mark Berg, executive vice president, corporate operations, told the Reporter-Telegram by email.
He added that while the growth investors Sheffield mentioned remain an important part of Pioneer’s investor base, “the steps we are taking should attract value and yield investors as we continue to improve corporate returns and begin to return more capital to shareholders through increased dividends and share repurchases.”
Pioneer also reported it was looking at ways to monetize drilling inventory not slated for near-term development and is evaluating its water infrastructure.
Berg told the Reporter-Telegram the company is considering DrillCos – drilling joint ventures between a capital provider and an E&P company – as a vehicle to accelerate the value of its large inventory of drilling locations that won’t be developed in the foreseeable future.
“We continue to build out our water infrastructure and expect the Midland treatment facility to be completed in 2021,” he stated. “At some point, it may make sense to partner with a third-party water company, but that evaluation has yet to be done. In fact, there is no assurance that we will make any changes to our water infrastructure business.”
Berg said Pioneer expects to continue improving both its corporate returns and generate significant cash flow in excess of capital needs while achieving a production growth rate in the mid-teens.
“As we completed our transition to a Permian ‘pure play’ company, it was important to bring our cost structure in line with our peers,” he said. “Following our restructuring, we are now in the top tier of our peer group in terms of General & Administrative spending per barrel of oil equivalent.”
Asked if other shale operators are likely to join Pioneer in an ‘extreme belt-tightening’ regimen and what it would mean to future energy supplies, Berg cited the industry’s continued efficiency gains.
“That bodes well for future production growth, capital investment and job creation in the Permian,” he said. He added that the company also has an eye towards the Permian’s Future by being heavily involved with the Permian Strategic Partnership, especially its efforts in attracting and retaining talent.
The Permian, Berg said, “is Pioneer’s future. We have a significant drilling inventory on our existing acreage that will allow us to be active in the Permian for decades to come.”