RIL’s US shale partner to cut drilling costs by 20%
Pioneer Natural Resources will reduce capital expenditure, operating costs to minimize spending in excess of estimated cash flows for 2015
Mumbai: Pioneer Natural Resources Co.—one of the biggest shale gas companies in the US and partner of Mukesh Ambani’s Reliance Industries Ltd (RIL) in the Eagle Ford shale acreage—plans a 20% cut in the drilling and completion cost across its portfolio.
“As a result of the significant drop in commodity prices, the company has implemented initiatives to reduce capital spending, operating costs and general and administrative expenses to minimize spending in excess of estimated cash flows for 2015 and to maintain significant financial flexibility," it said.
“This plan includes reducing drilling and infrastructure development activities until margins improve as a result of (i) increased commodity prices and/or (ii) decreased well costs," its annual report said.
The report said that to date, Pioneer had achieved reductions of approximately 10% in drilling and completion costs, as compared with 2014 average well costs, and was targeting an additional 10% reduction.
Rigs have been terminated or stacked in the Spraberry/Wolfcamp and the Eagle Ford Shale areas and the its asset teams are also implementing initiatives to reduce controllable production costs, including costs associated with fuel surcharges, electricity supply, water disposal and compression rental, it said.
Pioneer has an asset spread across two main assets—Spraberry/Wolfcamp and the Eagle Ford while it divested its stake in the other three in 2014, namely Hugoton field in southwest Kansas, Barnett Shale field in North Texas and Pioneer Alaska.
RIL has a 45% stake in Pioneer’s Eagle Ford venture and 49.9% stake in a midstream company or oil and gas transportation and distribution business EFS Midstream Llc, set up to evacuate and provide service to the oil and gas available from Eagle Ford.
In November, both RIL and Pioneer had evinced interest in selling off the midstream venture.
Pioneer, in its annual report, pointed out that in the current market conditions a possible sale might be in doubt.
“The company is marketing its equity investment in EFS Midstream and no assurance can be given that a sale will be completed in accordance with the Company’s plans or on terms and at a price acceptable to the company," the report said.
However, according to RIL’s third quarter statement, it continues got be bullish on Eagle Ford, which it considers has the best prospects among shale assets in the US.
“Eagle Ford shale remains one of the most competitive liquid shale plays in the US and is better positioned to remain competitive even in a volatile price environment," RIL had said on 16 January post its third quarter results announcement.
As on December 2014, its Eagle Ford venture contributed almost 60% of the total shale-based oil and gas production of RIL. Its total shale oil and gas revenue stood at ₹ 1,488 crore and net operating profit was at ₹ 567 crore.
Pioneer said in the annual report that in 2015, the company expects capital spending for drilling operations to total $1.6 billion with approximately 75% of this amount to go into horizontal drilling of Spraberry/Wolfcamp and Eagle Ford Shale areas.
In 2010, RIL had ventured into the shale gas business in the US through joint venture agreements with three companies—Atlas Energy Inc. and Carrizo Oil and Gas Inc., in the prolific Marcellus region in south-western Pennsylvania and with Pioneer in the Eagle Ford shale acreage, in the Texas region of the US. It had invested a total of $2.046 billion acquiring the stakes.
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