Oil report

UPDATE 2-Pioneer Natural to sell shale stake to Sinochem for $1.7 bln

* To sell 40 percent of interest in Texas field

* Sinochem to pay $500 mln in cash, rest in future drilling costs

* Sinochem will acquire about 82,800 net acres of leasehold

* Pioneer shares rise 3 pct

By Swetha Gopinath

Jan 30 (Reuters) - Oil and gas producer Pioneer Natural Resources Co said it would sell a 40 percent stake in about 207,000 net acres in the Wolfcamp shale field in Texas to China’s state-run Sinochem Group Co Ltd for $1.7 billion.

The deal is the latest in a string of investments by Chinese companies in North America, which are seeking new energy sources to power the country’s booming economy and to gain understanding of emerging drilling methods to tap shale reserves at home.

Shares of Pioneer, valued at about $14.50 billion, rose 3 percent to $121.32 in early morning trade on Wednesday.

Sinochem will pay $500 million in cash and spend $1.2 billion to fund a portion of Pioneer’s future drilling costs.

Sinochem will acquire about 82,800 net acres of leasehold as per the deal. Pioneer will continue as the operator of the joint interest area, the Dallas-based company said.

Production in the joint interest area averaged about 2,000 barrels oil equivalent per day (boe/d) in 2012, with a year-end exit rate of about 5,000 boe/d.

At least four analysts said the deal was a big win for Pioneer, with valuations beating their expectations by a wide margin.

“We believe the $18,100/acre price (given 5 mboepd production at year-end 2012 at $100,000 per flowing boe) on the Southern Midland Wolfcamp JV is about $3,000/acre above Street expectations and is positive for the stock,” Global Hunter Securities analyst Mike Kelly wrote in a note.

Most analysts’ expectations were between $10,000 and $15,000 per acre.

The deal was also positive for nearby producers such as Devon Energy Corp <DVN.N, EOG Resources Inc, Laredo Petroleum Holdings Inc, Linn Energy LLC, Legacy Reserves LP and Callon Petroleum Co, Robert W. Baird analyst Michael Hall wrote in a note.

The emerging Wolfcamp Shale may ultimately rival the success of Eagle Ford shale in the same state, information provider IHS Inc said in December.

The deal is expected to close during the June quarter, with December 1, 2012 being the effective date of the transaction.

Deals involving Chinese companies in North America include Sinopec Corp’s $2.2 billion investment in five fields being developed by Devon Energy and CNOOC Ltd’s $15.1 billion deal for Canada’s oil producer Nexen Inc.

Sinochem’s businesses span energy, agriculture, chemicals, real estate and financial services, and the company has 200 units including Sinochem International Corp, Sinofert Holdings Ltd and Franshion Properties (China) Ltd.


Pioneer and Sinochem plan to drill 86 horizontal wells this year in Wolfcamp, increasing it to 120 in 2014 and 165 in 2015.

The deal also allows Pioneer to accelerate drilling in its more prolific Northern Permian acreage by freeing up capital, Robert W. Baird’s Hall said.

This is Pioneer’s second partnership with an overseas company. Indian conglomerate Reliance Industries Ltd bought a 45 percent stake in Pioneer’s Eagle Ford assets for $1.3 billion in 2010. The investment has helped Pioneer ramp up drilling in the Texas oilfield.

Pioneer also said on Wednesday it discontinued efforts to sell its properties in the Barnett shale in north Texas. The fields had a carrying value $456.8 million as of Dec. 31, 2011.

BofA Merrill Lynch was financial adviser to Pioneer, while Vinson & Elkins LLP was the legal adviser.