Pioneer Natural Resources Co. is purchasing drilling rights from Devon Energy Corp. in a Texas shale field where the buyer has been boring wells more than two miles long, expecting them to yield as much as 1 million barrels of crude each.
Pioneer agreed to pay $435 million to Devon for rights to explore 28,000 acres in the Midland Basin, a section of the Permian Basin in West Texas and New Mexico, according to a statement by the Irving-based company on Wednesday. The producer said it plans to boost drilling in the area by 42 percent to 17 rigs later this year. Devon will use part of the proceeds to boost investment in the Delaware Basin.
Buoyed by an 80 percent, four-month rally in oil prices, some U.S. shale drillers have been putting equipment back to work after idling more than 1,000 oil rigs since the start of last year. Twelve oil rigs were brought off the sidelines in the past two weeks, the first consecutive increases since August, according to a Baker Hughes Inc. data.
Pioneer, which in recent years cast off a far-flung portfolio of international oil fields to concentrate almost exclusively on Texas shale, said most of the acquired rights lie adjacent to — or in some cases, directly below — assets the company already owns. Pioneer expects wells it drills in those zones to generate pre-tax returns of 50 percent or more, according to the statement.
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Pioneer also raised its full-year 2016 capital budget by $100 million to $2.1 billion, bucking the trend among oil explorers who have been slashing drilling budgets to cope with the drop in prices between mid 2014 and earlier this year.
For Devon, the Pioneer deal is part of a package of sales amounting to $858 million. The transactions include oil fields in the southern Midland Basin and an undeveloped leasehold in Martin County, Texas, Devon said in a separate statement on Wednesday. The sales bring the total Devon has agreed to so far this year to $2.1 billion.
A global oil-price crash has forced Devon and its peers to slash costs, fire thousands of workers and cut dividends and exploration budgets. Chief Executive Officer Dave Hager said the deals mean that plans to sell exploration and production assets is ahead of schedule.
Hager has been unloading assets to shore up the company’s balance sheet while focusing on oil plays he has said will be more lucrative for Devon. Aside from the Permian Basin, areas where the Oklahoma City-based driller has shed holdings have included East Texas and Oklahoma.