Yes, give a driller a dollar and he’ll spend it on drilling. And yes, the recent oil boom created a lot of incentive to explore and produce more and more oil and spend more and more cash to experiment and determine how to maximize the amount of oil the new technology could pull out of the ground. David Einhorn’s recent attack on unconventional oil operators may have made a few valid points about the fracking industry (or at least the fracking industry of 10 months ago), but I found it interesting that he gave the gas frackers an easy pass as “globally competitive low-cost energy producers with attractive economics,” and yet came out so harshly on the “mother-fracker” Pioneer.
Pioneer Natural Resources is a Texas based independent E&P Company with core lease positions in the Midland Basin and the very heart of the Eagle Ford. You might remember Pioneer from last summer’s Commerce Department decision to allow the export of condensate – a type of ultralight crude oil.Condensate lives in a ghostly nether-world in the United States: it doesn’t get reported as a distinct type of production to any of the regulatory bodies; in some cases it is described as ultra-light crude oil and in some cases it is described as Natural Gas Liquid (NGL); it doesn’t get traded on a specific open market; and there is even variation in what API gravities are considered condensate. Historically condensate was left blended in with whatever crude was being pumped from conventional formations and shipped to refinery as such. The reality of higher levels of condensate in today’s tight shale hydrocarbon mix makes the separation of condensate necessary for the current US refinery configurations.
Condensate is pretty much a hydrocarbon-non-grata on the open US market, creating a storage bottleneck. In Asia, however, condensate typically trades near the value of WTI. Meaning every barrel of condensate that Pioneer (and quite a few companies since then) have endeavored to trade on the Asian market is very good money.
Let’s look at how Pioneer is positioned in the Eagle Ford. In this image we see their strong leasing position along the southern edge of the Sugarkane field, and below that on the left we have their currently active rigs positioned vs. the (darker) highest grade of oil acreage, and on the right vs. gas acreage.
Every well that Pioneer drills in the Eagle Ford will be rendering 1: very strong Oil results, 2: the strongest of Gas results (which should get them the Einhorn Gas pass), and 3: abundant Condensate (which they already have initial infrastructure to turn into strong profit in Asia).
What do you think? Leave a comment below.
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