Update December 6, 2016. Pioneer Natural Resources (PXD), one the biggest oil shale producers in the low cost Permian Basin, filled in some details on its post-OPEC agreement on reducing production today at the Cowen & Co. Energy Conference. The company said it will drill about 230 wells in 2016 and is looking to drill 250 in 2017. Production growth, the company projected, will be 14%+ in 2016 and an additional 13% to 17% in 2017. Even with that higher level of drilling, Pioneer expects that cash flow will cover capital spending beginning in 2018. The company also reported that it had net debt of $300 million at the end of the third quarter.
The most amazing figure in the presentation, to me anyway, was the company’s estimate of a production cost of just $2 a barrel on a horizontal well. Add in another $2 a barrel for taxes and Pioneer estimated that its operating cost was just $4 a barrel.
I think this is a good example of the problem facing OPEC in any attempt to use production cuts to increase oil prices: Many U.S. oil shale producers can ramp production relatively quickly from already drilled but uncompleted wells and operating costs in many oil shale reserves are so low that the current $50 a barrel price of oil is a green flag for production increases.
Pioneer Natural Resources was down 1.85% today to $184.77. I think this is one of the most attractive oil stock stories anywhere in the world. I’d like to get the shares a bit cheaper or at least to further de-risk a position in the stock before I add them to my Jubak Picks portfolio. (Pioneer Natural Resources is already a member of my long-term 50 Stocks portfolio.) So I’m going to wait until after the December 10 meeting of OPEC and non-OPEC producers to see whether a disappointing result to that meeting might give me a better entry point for the stock.
