positive news, page-3

Pioneer and Reliance in JV Talks
By: Zacks Equity Research
June 14, 2010 | Comments: 0
Recommended this article (2)
PXD | ATLS
Print Share


Texas-based Pioneer Natural Resources Company (PXD - Analyst Report), is negotiating a deal with India s energy major Reliance Industries Ltd., under which the latter will buy a stake in the shale gas assets of U.S.-based Pioneer, according to a report by Reuters.

In May 2010, Pioneer revealed its willingness to pursue a joint venture to speed up development activities in Eagle Ford Shale operations, which it will supposedly announce by the end of the second quarter 2010.

Reliance Industries Ltd. is also looking for a similar deal with the Pioneer, which is developing a large field for Eagle Ford Shale in South Texas .With an objective to create a brand in the U.S. market, Reliance formed a joint venture in April for the highly prospective Marcellus Shale with Pennsylvania-based Atlas Energy (ATLS - Snapshot Report) acquiring a 40% stake in Atlas operations in the shale.

Pioneers deal with Reliance is still under negotiation but one source familiar with the news said the price is expected to be less than the $1.7 billion Reliance paid in April for a joint venture with Atlas Energy. Citing a source, Reuters reported that the purchase value or the size of the stake in the deal with Pioneer has not been finalized.

Pioneer holds 310,000 acre in Eagle Ford Shale with a gross resource potential of more than 11 trillion cubic feet equivalent (Tcfe). In early May 2010, Pioneer Natural Resources reported completion results of the Chesnutt Gas Unit #1, the companys fifth well into the Eagle Ford Shale. The first successful well of the company tested 11.3 million cubic feet equivalent per day (MMcfe/d) in October 2009. Pioneer's second well tested at an impressive rate of 17 MMcfe/d in January 2010. These results, combined with the companys in-house database, have led to an expansion of the drilling program in the Eagle Ford play for 2010.

Eagle Ford Shale is a lucrative prospect for the investors due to its low breakeven cost, high liquids content and large lease sizes relative to other shale plays. Since Shale gas accounts for between 15% and 20% of U.S. gas production, which is anticipated to increase by four times in the coming years, its demand among producers is also increasing by the day.

We remain optimistic on Pioneer based on a favorable oil environment in 2010 and its exposure to the Eagle Ford Shale. The company is accelerating its drilling program around key areas with significant cost control initiatives, which will furnish better earnings and free cash flow visibility.