RPT-Pioneer says some U.S. fracking costs competitive with Saudis

By Terry Wade  Thu Jul 28, 2016 4:45pm EDT  reuters.com

Improved fracking techniques have helped cut Pioneer Natural Resources Co's production costs in the Permian Basin to about $2 a barrel, low enough to compete with oil rival Saudi Arabia, CEO Scott Sheffield said on Thursday.

The comments from Sheffield, who is retiring soon, were perhaps the most concrete sign yet that the fittest U.S. shale oil producers will survive the price crash that started in mid-2014 when Saudi Arabia and OPEC moved to pump heavily to win back market share from higher-cost producers.

Dozens of shale companies, many with marginal assets, have filed for credit protection in the biggest wave of corporate bankruptcies since the telecoms crash of the early 2000s. Sheffield said high costs would continue to make U.S. shale plays outside the Permian basin relatively less competitive.

On Pioneer's second-quarter results call, Sheffield said that, excluding taxes, production costs have fallen to $2.25 a barrel on horizontal wells in the Permian Basin of West Texas, so it is nearly on even footing with low-cost producers of conventional oil.

"Definitely we can compete with anything that Saudi Arabia has," he said.

"My firm belief is the Permian is going to be the only driver of long-term oil growth in this country. And it's going to grow on up to about 5 million barrels a day from 2 million barrels," even in a $55 per barrel price environment, he added.

Oil traded near $50 a barrel for much of the second quarter but is currently around $42. Pioneer's shares were up more than 3 percent on Thursday at $155.91 each.

Sheffield said other U.S. shale plays, notably the Bakken in North Dakota and the Eagle Ford in South Texas, may not be able to weather the downturn as well given their higher costs.

"The Bakken and the Eagle Ford I think there's no way they can recover to the levels that they've already had," he said.

Pioneer expects output to grow 15 percent a year through 2020 after posting production of 233,000 barrels of oil equivalent a day this past quarter. It sees most of its growth in the Permian, though it also has acreage in the Eagle Ford.

Pioneer helps limit costs by doing much of its oilfield services work in-house. It also has its own sand mine, and uses effluent water from the city of Odessa for frack jobs using pressurized sand, water and chemicals to unlock oil from rock.

Pioneer said it is now introducing its third generation of well completion techniques, called version 3.0, that is using even more sand and water than the super-sized volumes introduced at the start of the price crash to pull more oil out of rock.

Its newest wells are using up to 1,700 pounds per foot of sand, up to 50 barrels per foot of fluid, and frack points as often as every 15 feet with wells that are now nearly 10,000 feet long.

Wells fracked using completion techniques known as version 2.0 have produced about 2,000 barrels per day in their early days, double what they were producing with earlier wells.

While the newest wells appear more productive, the company declined to say what output from wells fracked with the third generation completion techniques would ultimately be, partly because it chokes, or restricts, initial output from new wells to ensure their longevity.