Pioneer to sell 40% interest in Wolfcamp Shale assets in the US for $1.7bn

US-based Pioneer Natural Resources has signed an agreement with Sinochem Petroleum, a subsidiary of Sinochem Group, to sell its 40% interest in about 207,000 net acres in the horizontal Wolfcamp Shale play of Spraberry trend area field in the US, for $1.7bn.

Sinochem will pay $500m in cash to Pioneer as part of the deal before normal closing adjustments, while the remaining $1.2bn will be paid after carrying a portion of Pioneer’s share of future drilling and facilities expenses.

Under the agreement, Sinochem will acquire about 82,800 net acres of leasehold, currently held by Pioneer in Wolfcamp depths and deeper horizons.

Sinochem will fund 75% of costs for Pioneer’s drilling and facilities until the $1.2bn of drilling carry is completely used, where Pioneer will have six years to use the drilling carry.

Pioneer, which will be the operator of the field, can also conduct all leasing, drilling, completion, operations and marketing activities in the joint interest area, which will cover defined portions of Upton, Reagan, Irion, Crockett and Tom Green Counties in Texas.

Sinochem will have a chance to participate in any vertical wells that are drilled in the joint interest area after the effective date, and will receive its share of production and costs from the Wolfcamp.

Pioneer has drilled and completed 39 horizontal wells in the Wolfcamp Shale joint interest area as of 31 December 2012, of which 22 wells are in production stage, while four additional wells were flowing back.

Pioneer’s net horizontal Wolfcamp Shale in the joint interest area has flowed at an average of about 2,000 barrels oil equivalent per day in 2012, with an exit rate of about 5,000 barrels oil equivalent per day.

Pioneer’s chairman and CEO Scott Sheffield said that the company, along with Sinochem, will accelerate development of oil-rich acreage position in the Wolfcamp Shale area.

"This accelerated development will add significant production and reserves for Pioneer while enhancing shareholder value," added Sheffield.

The transaction is expected to complete in the second quarter of 2013, subject to customary governmental approvals.