A $3 billion sale of Pioneer Natural Resources’ assets in the Delaware Basin was completed last week and the company plans to focus its oil and gas operations to the east.
Pioneer announced the sale to Continental Resources in November, seeking to divest from the Delaware – a sub-basin that spans southeast New Mexico and West Texas on the western side of the larger Permian Basin – in favor of developing operations in the Permian’s eastern Midland sub-Basin.
Pioneer Chief Executive Officer Scott Sheffield said the deal would allow Pioneer to refocus its resources in the Midland area where he said the company is the largest acreage holder.
The sale included about 92,000 acres with an estimated production of about 50,000 barrels of oil equivalent per day and 35,000 barrels of oil per day.
“This transaction returns Pioneer to being 100% focused on its high-margin, high-return Midland Basin assets, where we have the largest acreage position and drilling inventory,” Sheffield said. “Proceeds from this divestment will be used to further strengthen Pioneer’s balance sheet, improving our already strong leverage metrics.”
Continental CEO Bill Berry said the purchase will mark the company’s entrance into the Permian Basin region, complimenting assets held in the Bakken region in North Dakota, along with the Powder River Basin in Colorado and operations in Oklahoma.
“Continental’s foundation has always been built upon a strong geology-led corporate strategy,” Berry said. “This continues today and has directly led us to our new strategic position in the Permian Basin.”
Following the sale, Continental expected the assets to $750 million in annual cashflow from operations as 98 percent of the lands were in operations.
In total, the assets include more than 1,000 locations in the Bone Spring and Wolfcamp formations along with others in the Northern Delaware Basin, including water management infrastructure.
“These Permian assets contain the key strategic components common to all of our assets with significant untapped potential to enhance performance through optimized density development, wellbore placement, operational efficiencies and further exploration,” said Continental Chief Operating Officer Jack Stark.
Oil prices dip as production meets demand. Discoveries down in 2021
Large deals like the Pioneer sale were frequent this year as oil production resumed on increased demand.
The U.S. and world saw economic recovery from the COVID-19 health crisis that began last year, with vaccines becoming available and business and travel restrictions lifted.
The recovered demand spiked oil prices above pre-pandemic levels in the $60 to $65 range, with the Chicago Mercantile Exchange reporting domestic oil was trading at about $76 per barrel on Tuesday.
That price marked a slight decline from a peak of about $85 per barrel in November, as production grew to meet the renewed demand and President Joe Biden announced the federal government would release 50 million barrels of oil from the Strategic Petroleum Reserve to combat rising energy prices.
The improved price market, even with the recent dip, brought on growth in extraction operations throughout the Permian Basin and the two states that share it: Texas and New Mexico.
On Friday, the latest report from Baker Hughes showed New Mexico added four rigs in the last week for its highest rig count all year at 93 active oil and gas rigs – up by 28 from a total of 65 rigs a year prior.
Texas also added four rigs for a total of 279, and the Permian Basin was up six rigs for a total of 294, an increase of 121 rigs from last year’s total of 173.
But analysts warned that 2021 saw a dramatic decrease in new oil and gas assets worldwide with Rystad Energy reporting this year saw the lowest discovered volume in 75 years.
By the end of November, about 4.7 billion barrels were found this year, the report read, compared with 12.5 billion last year.
Palzor Shenga, president of upstream research at Rystad said the cumulative decline pointed to less large individual discoveries of hydrocarbons.
Seven new discoveries were announced last month with the year’s average monthly volume calculated at 424 million barrels of oil equivalent (boe).
The year’s largest discovery was made by Russian group Lukoil’s Yoti West at a location off the coast of Mexico believed to hold about 75 million boe.
“Although some of the highly ranked prospects are scheduled to be drilled before the end of the year, even a substantial discovery may not be able to contribute towards 2021 discovered volumes as these wells may not be completed in this calendar year,” Shenga said.
“Therefore, the cumulative discovered volume for 2021 is on course to be its lowest in decades.”
Adrian Hedden can be reached at 575-618-7631, email@example.com or @AdrianHedden on Twitter.