Bringing it closer to becoming a pure play Permian company, Pioneer Natural Resources Co. (PXD) has put a block of about 640,000 net acres in southeast Colorado on the market.

The announcement follows Pioneer’s sale of its Eagle Ford Shale midstream business to Enterprise Products Partners LP (EPD) on June 1 for $2.15 billion. The proceeds are planned to be allocated to Pioneer’s operations in the Permian Basin.

Pioneer’s sale in southeast Colorado is another move along those same lines for the Irving, Texas-based company, said Gabriele Sorbara, vice president of E&P/energy research at Topeka Capital Markets.

“Considering Pioneer’s tremendous running room in the emerging Wolfcamp shale plays, we believe this asset would likely be monetized to fund the growth in the Permian Basin," Sorbara said.

Sorbara said the company already has a strong liquidity position, with about $1.3 billion pro forma on the cash.

“They’re in good shape; they have good assets,” he said. “Pioneer is going to be able to weather this downturn better than anybody.”

Pioneer’s acreage in southeast Colorado is located in Bent, Cheyenne, Crowley, Elbert, Kiowa, Kit Carson, Lincoln, Prowers and Washington counties.

The company acquired the position in 2013 for about $75 per acre, he said. Shortly after, the land was going for north of $300 per acre.

The company’s acreage offsets impressive results in the Mississippian zone from Chama Oil & Minerals LLC and Nighthawk Energy Plc. Pioneer has permitted six vertical wells in the area to test various concepts, but the results haven’t been disclosed, Sobara said.

He said the package could go for anywhere between $100-200 an acre, equating to a $64 million to $128 million sale. However, there is potential for a pleasant surprise given the amount of private equity money currently floating around the industry.

"There could be a team that wants to really get this asset and could come in and pay a premium for it because it is a good starter company type package," he said.

In this case, the acreage could go for more than of $200 per acre—a nice return on its investment, Sorbara said.

The proceeds would be put to work in the Midland Basin and Eagle Ford, where rates-of-return are above 50% at current commodity prices, he said.

"We like the Pioneer story for its position in the Midland Basin and Eagle Ford Shale, and believe nothing is priced into shares for this asset, which could turn out to be a surprise source of funds with the growing interest in the area," he said.

According to Sorbara, other publicly traded operators with exposure or adding acreage to the stacked pay targets in southeast Colorado include Anadarko Petroleum Corp. (APC), Chesapeake Energy Corp. (CHK), Devon Energy Corp. (DVN), Newfield Exploration Co. (NFX) and Southwestern Energy Co. (SWN).

Breakdown

Meagher Energy Advisors has been retained by the company to handle the sale.

Highlights:

Extensive Land Position

  • More than 640,000 net acres;
  • Lease expirations in 2016-2018; most with favorable five-year extensions; and
  • Average net revenue interest 86%.

Reservoir and Resource

  • Unconventional play potential in upper Cherokee and middle Atoka shales;
  • Drilled five and cored three vertical unconventional test wells;
  • Drilled two lateral appraisals, one Cherokee and another Atoka, both testing oil to surface;
  • Conventional opportunities in Mississippian and Morrow formations; and
  • Shallow Niobrara oil and gas opportunities.

Prospects and Seismic

  • 137 square miles of 3-D;
  • Eight seismically defined vertical targets identified; and
  • Drill ready prospects with combined 9 million barrels of oil reserve potential.

Seismic workstation, lease and well files for Pioneer's package are available for review at Meagher's office in Greenwood Village, Colo. For information contact Nick Asher, vice president of business development at Meagher, at 303-721-6354 extension 260.

Bids are due for the package on July 9. The sale is expected to close Aug. 14 with an effective date of July 1.

What’s Next

Besides its position in the Permian, Pioneer also has assets in the Texas Panhandle, Raton Basin and Eagle Ford Shale.

A sale of its Raton assets covering 198,000 gross acres in southeastern Colorado is a likely next move for the company, Sorbara said.

Ultimately, he said there’s potential for the sale of Pioneer’s Eagle Ford assets. A sale of the assets, which includes 230,000 gross acres and extensive 3-D seismic data, could translate into proceeds of $3.5- to $4 billion.

“That would put them on track to really be a pure play Permian company and they have plenty of running room,” he said. “They have 50 years of running room in the Permian Basin alone.”

Contact the author, Emily Moser, at emoser@hartenergy.com.