Pioneer Natural Resources Company Earnings Call Nuggets: Appraisal Programs and Hutt Leases
Pioneer Natural Resources Company (NYSE:PXD) recently reported its first quarter earnings and discussed the following topics in its earnings conference call.
Doug Leggate – Bank of America Merrill Lynch: I have got a couple of fairly high level questions. If I look on Slide 16 I think you cannot talk about this as joining the dots, I guess. As I recollect always the acreage to the north has long been held by production. So, why such a diverse appraisal program as opposed to a more concentrated development program and what clearly looks like a phenomenal bunch of acreage that’s already held?
Timothy L. Dove – President and COO: Doug, as you can see on that Slide 16, our Northern appraisal program, we are testing the larger blocks that we hold. So, you can see where the yellow comes together. These is where we have some of our biggest acreage blocks. We think it’s important to prove up. Obviously, the Wolfcamp B, we are very confident of that and then eventually start looking at the Cline or the Wolfcamp D and then we’ll be testing three Spraberry Shale interval. So, these are all where our biggest blocks are and that’s the focus, but if we see tremendous results like on the well we did in Midland County, the Hutt well, obviously, we’ll be refocusing rigs there over the next two years on the better areas. So, it goal is to prove up our acreage even though 80% of it is held by production. There is only about 20% that’s not, but it’s really to cover our big acreage positions gone all the way up to the north.
Doug Leggate – Bank of America Merrill Lynch: So, I guess we should expect once you’ve gone through this, you were concentrating on rigs Bakken, what you see is the best there, is that a fair assessment?
Timothy L. Dove – President and COO: Exactly, yes.
Scott D. Sheffield – Chairman and CEO: That’s a best area with best zones, right…
Doug Leggate – Bank of America Merrill Lynch: So, I guess my follow-up if I may take another one is Tim on the lateral lengths, obviously there has been a lot of normalizing to longer lengths. What is the limitation on drilling I guess if we could maybe segregate it to (indiscernible) on the northern acreage. What is the limitation that you are going for the longer laterals, is it just connectivity of the blocks or because it looks like you’ve got this pretty well blocked up?
Timothy L. Dove – President and COO: Very clearly, the only limitation let’s say when you’re going from 7,000 to 10,000 feet is the leasehold position and do you had the contiguous leasehold in position such that you can cross leasehold and be able to get out to the 10,000 foot level. Of course in a lot of areas what we’re trying to do is work deals where we can either acquire or work with the offset leases that we don’t own to make sure we can drill the longer lateral. So I think what was going to happen is through time you’ll see us further moving towards longer laterals where we can do so.
Doug Leggate – Bank of America Merrill Lynch: Final one, Scott, I guess this one would be for you. I know I’ve asked you this before, but I’m going to try it again. An enormous resource clearly and the multiple zones work, what is the longer term plan as to how you pursue optimal development?
Scott D. Sheffield – Chairman and CEO: Doug, I think the – obviously with our production growth CAGR of 13% to 18%, we’re still using 500,000 barrel type curve to generate that. So, I think the key is if we can make wells more like the Giddings, say 700 to 750 to up to the higher type wells and million barrels of oil equivalent then will be — our wells that payout in five months, the hub well, it’s like you may payout in about five to six month timeframe. If we can make those type wells we’ll be generating enough production growth in cash flow to be able to take this company forward for the next several years and substantial double – to high double-digit production growth rates. So we really don’t need funding sources if we make those type wells…
Doug Leggate – Bank of America Merrill Lynch: In terms of optimizing value Scott, would there be a route to perhaps monetizing part of this or is that off the table?
Scott D. Sheffield – Chairman and CEO: No, we’re not even considered right now. So, we’re putting any decisions off until we get an idea what these three Sprayberry Shale zones are going to do and what the B and D zones going to do over the next two years. We’ll be making that decision by say the end of ’14.
Charles Meade – Johnson Rice: I actually had two – let me just start-off with. Could you talk about or could you tell us how big the Hutt lease is and really what I am after is with the rig that’s going to be dedicated there is this going to be drilling a dense spacing pilot or is this significantly sized lease that’s going to be spud around?
Scott D. Sheffield – Chairman and CEO: Yes, we picked up really two or three Hutt leases over the last 20 years from some major oil companies, so it is a huge lease. One thing interesting that we don’t comment on is that it is 93% net revenue. So, there is only 7% royalty on a lot of these leases. So, that’s another reason why we are focused on those areas also. So, it is a huge area, a lot of the development drilling and very high net revenue interest…
Charles Meade – Johnson Rice: And then the second question I had it goes back, I think, Doug may have touched on this earlier question with the normalizing of the workers for the Jo Mill is that just a scalar multiple based on lateral length that you do to normalize those curves up?
Timothy L. Dove – President and COO: Yeah, Charles, of course there is a lot of data in shale plays that support the idea that you have quite a strong correlation between lateral length and productivity. In this case we haven’t drilled the 5,000 foot lateral with couple of wells we drilled 2,500 but we believe that you will get a linear effect or linear multiple or scalar multiple effect by doubling the lateral length. So, we’ll of course be reporting more as the next well we drill in Jo Mill will in fact be 5,000 foot lateral. So, we will be able to tell you more definitively once those wells are done but we think conceptually it still points to the direction that the wells are performing at a pretty solid rates.
Charles Meade – Johnson Rice: This will just be the last follow-up. Is it going too far then because when I looked at your slide I believe it is Slide 13 that has those well curves on it, actually it’s 15. You have the Hutt, which is 7,400 foot lateral against those Jo Mill at 5,000, if you just bumped up the Jo Mill by another 50%, that would seem to imply that that the Jo Mill could be your best zone in the south – in the column?
Timothy L. Dove – President and COO: It could easily be the case, Charles. You have to think about the Jo Mill and the Spraberry Shales and in connection with those they have excellent well performance similar to the Jo Mill. They also can be drilled cheaper than Wolfcamp wells, probably $1 million and $1.5 million less and so there is a double benefit if in fact they produce at this level. But you have to sort of tap to break little bit we need to get some longer lateral Jo Mill wells drilled. We need to get these Spraberry Shale wells drilled and we’ll know more in the fullness of time how they are going to produce.