Pioneer’s Permian Well Results: Much Ado about Nothing?
Pioneer’s Permian well results
After Permian Natural Resources’ (PXD) announcement last week that its Permian Basin wells were gassier than expected, questions arose about the company’s actual oil output. The company has been seeing an increasing gas-oil ratio.
In the image below, you can see how PXD’s actual wet gas volumes were significantly higher than the forecast. Pioneer’s oil volumes, on the other hand, were in line with forecasts.
Interested in PXD? Don't miss the next report.
Receive e-mail alerts for new research on PXD
What did markets interpret?
Markets likely interpreted this as a negative sign because natural gas margins are lower than oil margins. While PXD assured that the rising gas-to-oil ratio would not affect its oil production growth, its stock dropped anyway.
Investors have been closely watching Permian activity, given the furor of M&A (mergers and acquisitions) activities we’ve seen in the region since 2016. Too much seems to be riding on the Permian Basin, which likely explains why any seemingly unfavorable news tends to get investors frazzled.
PXD’s management commented that gradually increasing GORs (gas-oil ratios) over the lifetime of a well is pretty normal. It noted that this trend has been observed in the Spraberry-Wolfcamp (in the Permian) since the 1950s.
PXD stated: “Increasing GORs on horizontal wells is consistent with the long-dated history of increasing GORs on vertical wells in the Spraberry-Wolfcamp. However, because horizontal wells contact more surface area and draw down pressures faster, the GORs on these wells are increasing somewhat faster than the increase experienced on vertical wells.”
Markets seemed to have ignored these comments, however, because PXD stock fell 12% after its 2Q17 earnings release when it also released its Permian well results.
Continue reading this series (below) for a broader look at the recent stock performances of other Permian-focused upstream companies.