Sinochem to buy stake in Wolfcamp shale from PNR

Sinochem Petroleum USA LLC, a subsidiary of China’s Sinochem Group, plans to pay $1.7 billion to acquire 40% of Pioneer Natural Resources Co.’s stake in 207,000 net acres in the Wolfcamp shale in the Spraberry trend of West Texas.

At closing, Sinochem will pay $500 million in cash to PNR, before normal closing adjustments, and will pay the remaining $1.2 billion by carrying a portion of Pioneer’s share of future drilling costs.

Sinochem and PNR plan to drill 86 horizontal Wolfcamp shale wells during 2013, 120 wells in 2014, and 165 wells in 2015. The transaction is expected to close during the second quarter, subject to customary governmental approvals.

Terms call for Sinochem to acquire 82,800 net acres held by PNR for all Wolfcamp depths and deeper horizons. PNR retains 60% of its interest and operates those assets.

The joint interest area covers portions of the Texas counties of Upton, Reagan, Irion, Crockett, and Tom Green. PNR retains its current working interests in all horizons shallower than the Wolfcamp horizon.

PNR has 6 years to utilize the drilling carry, subject to extension under certain circumstances.

Sinochem has an option to elect to participate in future vertical wells drilled in the joint interest area. PNR’s and Sinochem’s participation in vertical wells will be based on each party’s interest without any drilling carry being applied. PNR will retain 100% of its existing vertical production in the joint interest area.

As of Dec. 31, 2012, PNR had drilled and completed 39 horizontal wells in the Wolfcamp shale joint interest area of which 22 wells were on production and 4 additional wells were flowing back.

Of the 22 wells on production, 20 wells were completed in the B interval and 2 wells were completed in the A interval. PNR’s net horizontal Wolfcamp shale production in the joint interest area averaged y 2,000 boe/d in 2012, with a yearend exit rate of 5,000 boe/d.

Last year, Sumitomo Corp. of Japan signed a $1.4 billion joint venture with Devon Energy Corp. for the Wolfcamp-Cline shales (OGJ Online, Aug. 1, 2012).

Contact Paula Dittrick at paulad@ogjonline.com.

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