New tools give oil drillers another chance

Pioneer Natural Resources shifts away from natural gas as a new oil boom takes hold.

By Jim J. Jubak Jan 16, 2012 3:55PM
Image: Oil derricks (© Comstock/Corbis)I added Pioneer Natural Resources (PXD) to my long-term Jubak Picks 50 portfolio on Friday

To understand why I’m picking this oil and gas company from a long list of alternatives, you have to get deep inside the U.S. oil boom going on now.

That boom is a result of oil companies bringing new technologies to fields once thought to be either nearing the end of their lives or impossible to drill.

Pioneer’s Spraberry field fits that first category. The field is one of the oldest -- and largest -- in the Permian Basin and, despite having drilled in the area since the late 1980s, Pioneer continues to expand production by using technology to drill into deeper formations that has almost doubled estimated ultimate reserves. Pioneer has 900,000 Spraberry acres under lease.

Those estimated reserves don’t include what looks like will turn out to be a major new Permian play from the deep Wolfcamp Shale formation. This reserve, initially thought to be a relatively small niche play, now looks to be a big horizontal reserve like that found in the Eagle Ford shale. The Wolfcamp reserve continues to look bigger as Pioneer drills more wells.

In the second category -- fields that were thought impossible to drill before new technology developed in the late 1970s -- I’d put the Eagle Ford shale formation, where Pioneer controls 140,000 net acres. Thanks to a $1.15 billion joint venture deal with Reliance Industries in 2010, the company has been able to pursue an aggressive drilling program that targets 1,000 wells over the next five years. That will, the company believes, expand production 34-fold by 2015. About one-third of Pioneer’s Eagle Ford acreage is in formations rich in natural gas liquids and distillates rather than in natural gas.

Pioneer rounds out its Texas big three with 70,000 acres in the Barnett Shale formation.

The relatively high presence of oil and natural gas liquids in these shale reserves has let Pioneer cut drilling activity to almost nothing on its natural gas fields in Colorado, Kansas and Texas. In the face of depressed natural gas prices, Pioneer has reduced its natural gas production by about 4% while increasing its overall production by 15% in 2011. The company now projects 18% compounded annual production growth through 2014.

If you’re interested in these shares for something shorter than the five to ten year holding period of my Jubak Picks 50 portfolio, I calculate a target price of $115 a share by December 2012. The shares closed at $97.63 on Jan. 13.

At the time of this writing, Jim Jubak didn't own shares of any companies mentioned in this post in personal portfolios. The mutual fund he manages, Jubak Global Equity Fund (JUBAX), may or may not own positions in any stock mentioned. The fund did own shares of Pioneer Natural Resources as of the end of September. For a full list of the stocks in the fund as of the end of the most recent quarter, see the fund's portfolio here. 
Tags: oilPXD
20Comments
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Good pick Jubak...don't forget those oil service companies.
Jan 17, 2012 11:14AM
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You mean to tell me that the United States goes from a net dependency on imported oil to the tune of 75-percent (Ring a bell for anyone?), to a net exporter . . . in a matter of just a year after ten years of continuing and endless turmoil in the Middle East? Really? We are that stupid?

North Dakota has gone from producing almost nothing to 400,000 barrels a day. In around 5 years. It will pass Texas within the next few.

 

We import 49% of our *crude oil* on a net basis. And only 18% of all that we import even comes from the middle east.

 

http://www.eia.gov/energy_in_brief/foreign_oil_dependence.cfm

 

And *if* Fracking makes it thru everything, yes, there's the real possibility that shale oil will put a large dent into importing for us. There's over trillions of barrels of oil in the shale regions from Colorado, Montana, Utah, Wyoming, South Dakota, North Dakota, etc.

You mean that all that fighting for oil in Iraq and a pipeline in Afghanistan were for nothing, so government and the oil companies could make more money by exporting the stuff out of the country because there is more profit to be had? And whose being had here?

Take advantage. Invest in these companies who are going to be related to this boom.

 

Oil services, explorers, and cleaners (both natural gas and oil). The prices are higher now (than a few years ago, 2008/2009 were perfect times to buy in) but there's a lot more room to run there.

 

Can't believe people just vote the previous comment up. No research at all. Comeon.

Jan 17, 2012 11:07AM
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First off, the majority of foreign oil that comes to the States is from Canada and the tarsands which is largely controlled by American companies.

Second, that oil is cleaner than oil from Saudi Arabia by the time it comes down to the states.

Third, there is more than enough oil in Canada to provide oil for the entire world for centuries! Yes, centuries.

Fourth, Canada does a much better job than the states of limiting environmental damage and the restoration  of drilling and mining areas.

Is there waste? Yes, the oil industry throws money around like it is going out of business. So many companies are on cost plus contracts that they drag out production as long as possible to milk every dollar they can out of bigger companies. This is part of the reason we have the gas prices we do. You would be hard pressed to find a more inefficient industry than the oil industry with the outrageous salaries that are thrown around. Want to become rich, get into the oil industry...that's not a secret.

Jan 17, 2012 1:14PM
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Does anyone ask why Europe is bankrupt?  To hear the pinheads talk it is becuae CountryWide made a bunch of subprime loans!    Get real!  Socialism, and a drunken orgy of Europen 8 weeks vacations, retirement at age 50, FREE healthcare, etc. bankrupted Europe.  Teh party is over.  THe story in the U.S. is the same but to a lesser extent.  The U.S. can not afford our entitlement programs which have grown and are projected to grow at a rate three times faster than our economic growth.  If you think that is possible even taxing the "rich" you are a short a few bricks.

 

Sure the U.S. was pushed over the edge by a slowed economy.  Be it was government which caused that!  IT was the Democrats who pushed Fredie and Fannie to push subprime loans!! FACT!  When asked about it before teh colapse Barney FRank etal said there was no problem with these subprime loans.  FACT. SEcondly, the FEderal REserve held interest rates very low.  Low interest rates, drove housing speculation, which drove home prices higher very rapidly, and greedy individuals fell all over themselves to borrow too much money to get in on the action! 

 

REally, ask yourself how do subprime loans in and of themselves cause a doubling or tripling of home prices over a three or four year period?  They don't people's greed trying to get in and make a killing on a house does that.  Tough to hear but true.

Jan 16, 2012 9:24PM
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The U.S. is not a NET EXPORTER OF OI!!!!  WE IMPORT approx. 50%.  Maybe we export gasoline, but that is a Big difference from oil!!  And it is not because they "get more money" for gas in S. America, but becuase refining capacity is not evenly distributed on the East and West Coasts.  So we import gasoline on one coast and export from the other rather than ship gasoline within the country via expensive land trasport.  People need to pull their heads out and stop believing lies just because it fits their irrational hatred of every business which makes our very lives livable.
Jan 17, 2012 11:19AM
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As of the end of last year, the USA, is an oil EXPORTER!That's right, the oil companies are shipping refined gasoline to South America and elsewhere, because they can get more money than here.

Of refined products.

 

Not of crude oil.

So much for "Drill Here Now" rants and the supply/demand equation.

Um. Still very relevant. We import lots of crude oil. Also, we have to price to brent (which makes gas more expensive), if we get to the point of pricing to WTI, the price will be less.

The "pro" Keystone pipeline folks are not up to snuff on what it's for. > to pump crude to refineries for EXPORT. Jobs would be temporary for construction, NO relief at the pump, contrary to what the pro-politicians say. The amount of energy and waste to extract these heavy tar-sands,is unbelievable. Makes open pit coal mining look good. People need to wake up!

Exporting petroleum products would be good for the economy period.

 

Those kinds of jobs are high paying, technical skills, and will result in further improvement to the current refinery system which is undergoing big technology improvements.

 

I tend to think Liberal, but your post is ignorant.

Jan 17, 2012 8:57AM
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When are the American people going to wake up and demand that  gasoline and diesel prices  be brought under control. When you have the same people create the supply and also the prices on the open market, We will continue to pay artificially high prices.

In my area of the country, diesel prices are 30 cents a gal. higher than  high test. Try to tell me that this is justified  by higher oil prices.

American truckers need to band together and shut down this country for 24 hours and then tell the politicians  to either get it under control or shut it down again.

It would be so easy to do,At a set time everybody pull their rigs up to a  exit on the interstate and then shut them down .if every body did this  they would soon listen to our demands.

 

 

Jan 16, 2012 8:54PM
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As of the end of last year, the USA, is an oil EXPORTER!

That's right, the oil companies are shipping refined gasoline to South America and elsewhere, because they can get more money than here.

 

So much for "Drill Here Now" rants and the supply/demand equation.

 

The "pro" Keystone pipeline folks are not up to snuff on what it's for.

> to pump crude to refineries for EXPORT.

Jobs would be temporary for construction, NO relief at the pump, contrary to what the pro-politicians say.

The amount of energy and waste to extract these heavy tar-sands,is unbelievable. Makes open pit coal mining look good.

People need to wake up!

Jan 17, 2012 11:47AM
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All the more reason for oil prices to drop to reasonable rates instead of inflating because of corporate greed. Big oil will be the cause of the next recession because of their insatiable greed. With new technology drilling becomes easier and cheaper, but they do not pass the savings on, instead they hold back production in order to drive prices higher. The only ones that will profit from this strategy is Wall Street speculators and big oil. The middle class will loose more ground in their fight for survival. We won't be able to afford to drive to work, and America's public transportation system nation wide is not sufficient enough to afford us transport to and from work. A total collapse of the American dream due to corporate greed. 

Jan 17, 2012 11:28AM
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f Mr. Jubak lived in one of the states, like Texas, where all of these amazing new drilling techniques were taking place, he would hear weekly stories of ordinary people living on small country farms who can no longer drink their well water due to surface and sub-surface contamination by oil and gas drillers.

There have been almost 0 incedents of the subsurface contamination confirmed from what the EPA is concerned about. Fracking. Most of where this stuff is, *is not* prestine farmland or major aquifers.

 

Those regions are Kansas, Iowa, Indiana, etc, etc. There is some farmland in west texas, or north dakota, that is impacted. But of Farmers are also pretty generously compensated by oil companies as well.

 You would see a state that use to pride itself on not looking third world like Oklahoma now having rigs in their city parks, in neighborhoods and all along the highway. Why? Like President Obama said, we can drill all we can but we are still 30% or more short of what we are using and have to import the difference. Do you really expect Congress to force homebuilders to incorporate more energy-saving technologies into new homes and cars when their grandchildren are the trustfund babies sucking off Exxon-Mobile preferred stock? Not going to happen. Gasoline will forever more be high because we have a shortage of oil. God Bless President Obama and his impossible task of taking on corrupt politicians, oil companies and mutual fund managers who perpetuate this myth that we cannot break from our oil dependence.

There's interest in all of it.

 

I'm a believer in getting more fuel efficient cars, better wind, solar, etc. But the fact of the matter is, that progress is taken with a lot of risk. It's more expensive, the markets are smaller.

 

We should pursue all things available in a future of limited resources. Solar and Wind are not enough (and could never be enough at this point). Look what happened to First Solar. Without huge government subsidization, it's not cost competitive.

 

So we have to use all things. Natural Gas, Oil, Solar, Wind, Nuclear, Coal, etc. Unless you would prefer to live without electricity and the ability to travel.

 

If you can make the sacrifice of going to a life where you farm for what you need, stay in your cabin, and never go anywhere your whole life, then hats off to you.

 

 

Jan 17, 2012 1:04PM
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Big Oil will cause the next recession?  This stupid, irrational hatred of oil companies and business in general is ... well ... stupid and quite frankly based on the GREED of the individuals expressing this hatred.  Yes, Greed!  Someone makes a profit off of offering a product or service to them and they hate them for it.  They will deny it but it is true. 

 

Oil companies buy the vast majority of their crude oil at market prices and then refine it.  Most U.S. companies simply to not have reserves of their own and buy the crude from Countries. 

 

The market price is driven by demand and supply, but it also is denominated in U.S. dollars.  And like it or not Obama's distruction of the U.S. economy and his trillions of dollars in borrowing is killing the dollar.  FACT!  When the dollar is devalued relative to foriegn currencies the price of Oil in DOLLARS goes up.  And with Obama's destruction and coming inflation, we have not seen anything yet!  It won't be oil companies causing the rise in the price of oil my friends!

Jan 17, 2012 2:15PM
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Maybe Sean Penn can get his Commie buddy from South America to show us how to nationalize the oil companies and we can pay 50 cents a gallon.

The downside of any world wide economy recovery is going to be higher energy prices. The only good thing about the recession is that energy demand was lowered. 

You libtards can't have it both ways......high growth (so King Obama can be re-elected) and low prices (so the Occupiers can continue living in the park on Ramen Noodles). Econ 101. 
Jan 16, 2012 7:29PM
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Who cares. Drill a trillion barrels per hour and gas at the pump will still be stupid high priced.

Oh this is for making money by not doing anything except ripping people off my bad. I am all for that. Good pick. Have to take a look at this closer.



Jan 17, 2012 3:59PM
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Does anyone ask why Europe is bankrupt?  To hear the pinheads talk it is becuae CountryWide made a bunch of subprime loans!    Get real!  Socialism, and a drunken orgy of Europen 8 weeks vacations, retirement at age 50, FREE healthcare, etc. bankrupted Europe. 

It's a combination of demographics, locking countries into one currency, social obligations, and irresponsible financial institutions.

 

The US actually exaccerbated (accelerated the timeline) the problem with the 2008 market implosion. Strained budgets and increased deficits for a lot of other countries besides ours.

 

The financial situations of Greece, Portugal, Spain, Ireland almost *all* relate to free-market binges on low interest policies. That is because once the EURO happened, everyone got the prestine rating based off the German economy.

 

Their debt positions are actually better than the US when you consider the measurements.


Europe reports full liabilities (including intragovernmental debt) and almost none of them are above 100%. Italy, Greece are exceptions.

 

On a comparitive basis, we report net debt at aroun 60% to GDP, France, Germany, UK, Spain, etc, etc are all under this on a net debt basis. We're at around 100% when looking at intragovernmental, and Spain for instance is at 60%, Germany, France, UK all around 80%.

Teh party is over.  THe story in the U.S. is the same but to a lesser extent.  The U.S. can not afford our entitlement programs which have grown and are projected to grow at a rate three times faster than our economic growth.  If you think that is possible even taxing the "rich" you are a short a few bricks.

As stated above, the US is actually in a worse position with less healthcare, less public spending, etc, etc, etc. So your case is?

Sure the U.S. was pushed over the edge by a slowed economy.  Be it was government which caused that!  IT was the Democrats who pushed Fredie and Fannie to push subprime loans!! FACT! 

CRA guidelines offered an incentive and extremely limited requirement to loan to less able applicants who *met* certain criteria.

 

The Banks invented criteria for a bunch of other things. The banks did *not* have to make loans to the magnitude they did. They didn't have to invent SIVs, CDS, CDOs, MBSs, ect. No one told them to do that.

 

Those financial instruments are what wrecked the economy. Fannie and Freddie don't even do anything but follow *private industry practices*, what they offered was to buy loans off banks balance sheets.

 

*An incentive* - Yet unliike an irresponsible borrower who had an incentive to borrow cheap money, you seem to see no need to hold banks accountable for doing the exact same thing?

 

Did you know CRA qualified loans actually *OUTPERFORMED* private subprime bankloans made without the guidelines?

 

Now, don't get me wrong, the wealthy own the government, so I'm sure to an extent they are all responsible.

 FACT. SEcondly, the FEderal REserve held interest rates very low. 

The Federal Reserve is a private bank.

 Low interest rates, drove housing speculation, which drove home prices higher very rapidly, and greedy individuals fell all over themselves to borrow too much money to get in on the action! 

Banks borrowed more than anyone else by far.

 

I mean, you're comparing maybe 1 trillion dollars of irresponsibility (figure 5 trillion in new mortgages from 2000-2008, and 20% were subprime at most) to an irresponsibility on the tune of 200 trillion dollars in bets by Domestic Banks.

 

There's just no comparison.

Jan 17, 2012 4:05PM
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Maybe Sean Penn can get his Commie buddy from South America to show us how to nationalize the oil companies and we can pay 50 cents a gallon.

The downside of any world wide economy recovery is going to be higher energy prices. The only good thing about the recession is that energy demand was lowered. 

You libtards can't have it both ways......high growth (so King Obama can be re-elected) and low prices (so the Occupiers can continue living in the park on Ramen Noodles). Econ 101.

This is pretty nonsense at this point.

 

When you talk about the condition of government spending, most government spending supports someone getting rich somewhere. All medicare/medicade is basically payoff to health companies. Same for military spending.

 

But the main thing is, the condition of "equality" has never been further apart than now in modern economics. The last time it was this high was 1929, and it's even higher now.

 

Economics 101, an economy (and especially a globally focused one) will not work when all the working capital resides with 1% of the population. The other 99% need access to credit, capital, working wages, livable wages, etc.

 

There are two inefficient extremes. In absolute socialism, an economy doesn't function efficiently because price disparities create incentive for people to produce. In feudalism (which, it's modern corporatism today) you have inefficiency because the "Kings" have no incentive to create things to improve conditions.

 

Building a new castle, or buying big bling, doesn't employ everyone, and it doesn't improve economic efficiency. There's no incentive for the serfs to invent a new tool, business, etc and there's no capital to do it.

Jan 17, 2012 3:59PM
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REally, ask yourself how do subprime loans in and of themselves cause a doubling or tripling of home prices over a three or four year period?  They don't people's greed trying to get in and make a killing on a house does that.  Tough to hear but true.

If by "people" you mean banks trying to make lots of free money. I'm sorry, the

 

Federal Reserve is a big private bank, banks who were the lender of money to everyone buying houses, wanted to continue to make huge fees not just on housing loans, but also on everything they were coming up with.

 

Banks came up with the practices of packaging home loans, creating SIVs, MBSs, off of home loans. It was big business for them.

 

And in 2008, when confronted in the public hearings, *NONE* of those CEOs could explain what they had on their books. None of them.

Jan 17, 2012 3:32PM
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Hey Stromprophet: Where do you think they get the refined product from? Crude Oil.

How is the above sentence related to the point below?

The point is: how long do you expect to be paying $3.80 for a gallon of gasoline when the oil companies can charge more abroad? Don't believe it? Then just ask all the Canadians that come down to the "States" to buy gas.

Way to exaggerate.

 

Quick, look up the national average per gallon of gasoline.

 

I pay 3.04 for instance.

 

And if the average gas is *more abroad* then why would Canadians come down here to buy gas? You mean it's cheaper here? For them? Need to give the example that isn't the opposite of the point being made.

 

There's a lot that goes into exporting or not exporting refined products.

 

Just because they could sell to India at say $5.00 a gallon doesn't make the logistics work. Canada is an easy example, because the logistics are almost nothing between the US because we have a huge land border.

 

It's a much harder propspect and price difference to try export gasoline overseas such long distances to other markets.

 

(And just an aside, most refiners *aren't* oil companies)

The point is: what happens when all these power generating units can't compete in price for the coal being mined right here in the United States. Did you know that we export coal to China to power all the millions and millions of American jobs that will never be coming back?

Is there a point? You keep saying "the point is" - What is the point of the above statement?

 

It's great that coal is cheap. But obviously, just being cheap doesn't make up for the fact that it can't be transported by a pipeline, or injected into your car, or make a petroleum product (various plastics, etc).

 

Which is more important to human life? The water you drink, or the gas needed to run gas powered electric power stations. Or don't you mind polluted water wells due to fracking? Or is your attitude like so many other Americans: as long as it is not the well I'm drinking from. Right?

What I'm saying is you can't just go "Hey, let's stop oil altogether" which seems to be your attitude.

 

Economies are more complex than that.

Wait until the lights don't go on someday when our standard of living can't compete with the price of oil and oil based products needed to generate electricity in this country.

?

 

Oil generates almost 0 electricity in this country. What are you talking about?

Think the oil companies or the gas companies or the coal companies lose any sleep over you sitting in the dark, with no water to drink, and no way to pay for a gallon of gasoline?

.....I can see you're making a big difference on that front with these comments.

Jan 16, 2012 8:33PM
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Someday, in his lifetime, Mr. Jubak will be writing about oil-stock trustfund babies having to actually go out and work for a living because the dividend will be zero on their stocks. Oil and Gas will be sin-taxed to death someday once honest politicians incorporate green technologies into every industry and all old cars and homes are converted. If we weren't willing to wage war and murder to get our supply of oil we would be paying $10/gallon, not $3 or $4 dollars. How can anyone who served in the Gulf honestly come home proud and say with truth what their real mission was? It was all about oil and nothing else. Bin Laden was living in Pakistan under the full protection of their government, which we were propping up. Is it worth it? There has to be a better way.
Jan 16, 2012 8:25PM
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If Mr. Jubak lived in one of the states, like Texas, where all of these amazing new drilling techniques were taking place, he would hear weekly stories of ordinary people living on small country farms who can no longer drink their well water due to surface and sub-surface contamination by oil and gas drillers. You would see a state that use to pride itself on not looking third world like Oklahoma now having rigs in their city parks, in neighborhoods and all along the highway. Why? Like President Obama said, we can drill all we can but we are still 30% or more short of what we are using and have to import the difference. Do you really expect Congress to force homebuilders to incorporate more energy-saving technologies into new homes and cars when their grandchildren are the trustfund babies sucking off Exxon-Mobile preferred stock? Not going to happen. Gasoline will forever more be high because we have a shortage of oil. God Bless President Obama and his impossible task of taking on corrupt politicians, oil companies and mutual fund managers who perpetuate this myth that we cannot break from our oil dependence.

Jan 16, 2012 7:32PM
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