Pioneer To Acquire Midland Basin Acreage, Add Rigs In 2Q16

Pioneer Natural Resources Company (NYSE:PXD) has entered into a purchase and sale agreement with Devon Energy Corporation (NYSE:DVN) to acquire about 28,000 net acres in the Midland Basin. The transaction has been valued at $435 million.

The acreage is spread across Martin, Midland, Upton, Reagan, Glasscock, Andrews, Dawson, Gaines and Howard counties. It has a current net production of about 1,000 barrels of oil equivalent per day (BOEPD), of which about 70% is oil. Almost the entire acreage is held by production.

Most of the 28,000 net acres is situated in the core of the Midland Basin. A substantial portion of the acreage to be acquired offsets the existing acreage of Pioneer. Of the core acreage being purchased, about 15,000 net acres are situated in the Sale Ranch area in Martin County and northern Midland County where Pioneer has drilled its most productive Wolfcamp B wells.

Notably, a considerable acreage of the Wolfcamp B that Pioneer is obtaining in the Sale Ranch area lies right below Pioneer’s Wolfcamp A acreage. The acquisition, together with Pioneer’s existing acreage in the area, will add about 70 Wolfcamp B locations to Pioneer’s Sale Ranch area drilling inventory.

The remaining 8,000 net acres in the Sale Ranch area and northern Midland County consist of about 80 Wolfcamp B locations. Pioneer will have an average working interest of 68% in these locations. The company intends to purchase additional acreage near these leases to increase its working interests and extending well lateral lengths to more than 7,500 feet. There has been a continuous improvement in the well productivity in this area due to extension of lateral lengths and optimization of completions

Well productivity in this area has continued to improve as lateral lengths have been extended and completions have been optimized.

In concurrence with this acquisition and the company’s improving outlook for oil prices, Pioneer expects to increase its horizontal rig count by five rigs to 17 rigs from 12 rigs in the northern Spraberry/Wolfcamp. The first rig is planned to be added in Sep 2016, while two additional rigs will be added each in Oct and Nov 2016. The company intends to utilize three rigs to drill the locations being added in the Sale Ranch area once the well locations are allowed. As a result of the rig additions, the company’s 2016 capital budget is likely to rise by about $100 million from $2.0 billion to $2.1 billion.

Currently, Pioneer Natural Resources carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the oil and gas sector include CVR Refining, LP (NYSE:CVRR) and ReneSola Ltd. (NYSE:SOL) . All these stocks sport a Zacks Rank #1 (Strong Buy).