Pioneer Natural Resources Company
) has inked a farm out agreement with a U.S. subsidiary of
Sinochem Group - Sinochem Petroleum USA LLC - for a portion of
the company's acreage in the highly prospective horizontal
Wolfcamp Shale play.
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Pioneer intends to divest 40% of its 100% holding in the shale in
the southern portion of the Spraberry trend area field for $1.7
billion to Sinochem. Pioneer will retain its current working
interest as well as operatorship in all horizons shallower than
the Wolfcamp horizon.
Upon the closure of the deal, which is expected in the second
quarter of 2013, Sinochem will make a cash payment of $500
million to Pioneer. A further amount of $1.2 billion will be
carried over and adjusted toward its future drilling and
facilities costs (drilling carry).
Pioneer holds net acreage of around 207,000 in the Wolfcamp, of
which Sinochem will receive interests in around 82,800 net acres.
The joint interest area includes defined portions of Upton,
Reagan, Irion, Crockett and Tom Green Counties in Texas.
Sinochem has decided to finance 75% of Pioneer's share of
drilling and facilities expenses after closing until the $1.2
billion of drilling carry is fully utilized. Sinochem will also
fund its share of drilling costs for the horizontal Wolfcamp
Shale. Pioneer has six years to use the drilling carry from the
effective date of transaction of Dec 1, 2012, till the date of
Per the development plan, both the companies have proposed to
drill 86 horizontal Wolfcamp Shale wells in 2013. This will
increase to 120 wells in 2014 and 165 wells in 2015.
Sinochem's recent deal to purchase a portion in the U.S shale in
exchange for funding drilling costs follows other recent deals by
) and China Petrochemical Corp. The former farmed in to a portion
Chesapeake Energy Corporation
) Niobrara shale project in 2011, while the latter inked a deal
Devon Energy Corporation
) in 2012.
Pioneer holds a Zacks Rank #3, which is equivalent to a
short-term Hold rating.