Dallas-based Pioneer Natural Resources Co.
(PXD - Analyst Report
) signed a deal with India’s energy major Reliance Industries Ltd., under which the former agreed to sell a 45% interest in its Eagle Ford Shale assets for a total consideration of $1.15 billion.
India’s oil, gas and petrochemicals giant, Reliance, will buy a 45% stake in 212,000 acres of Pioneer’s Eagle Ford Shale properties and will pay $266 million at the time of closing in addition to providing $879 million for future drilling costs to Pioneer.
Reliance also entered into a joint venture (JV) agreement with Pioneer’s existing partner in the field (Newpek LLC) for about $210 million and will also partake in midstream assets development of the shale, as a 49.9% partner.
Under the terms of the agreement, Pioneer, as the operator, retains a 42% working interest (WI), while Reliance acquired 41% WI in the acreage. The remaining 17% WI will be enjoyed by other interest owners. Last month, Pioneer had proposed to pursue a joint venture to boost development in Eagle Ford and consequently completed drilling six horizontal wells in the field. The developmental plans included in this JV are the drilling of 26 horizontal Eagle Ford Shale wells from June to December 2010, 70 wells in 2011, 120 wells in 2012 and 140 in 2013. The targets are consistent with Pioneer’s accelerated drilling program.
We believe the joint venture will augment Pioneer’s position, making it the technology leader in Eagle Ford Shale, which accounts for between 15% and 20% of U.S. gas production, as approximately 1,750 drilling locations are being identified in the JV acreage with a gross resource potential of more than 11 trillion cubic feet equivalent (Tcfe).
Following the current agreement, the company expects net production of 2,000 barrels of oil equivalent per day (BOE/d) this year and in the range of 32,000 BOE/d−41,000 BOE/d in 2013. Assuming a high production growth and including an upfront payment from Reliance, Pioneer will stand to benefit from upstream and midstream activities in Eagle Ford Shale. However, we remain concerned with Pioneer’s lack of meaningful exposure to the emerging shale plays, which is a competitive disadvantage.