{"id":3119,"date":"2015-12-08T23:06:58","date_gmt":"2015-12-09T04:06:58","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/pioneer-natural-resources-investing-in-operational-efficiency-during-the-down-market-to-survive-and-then-thrive\/"},"modified":"2015-12-08T23:17:28","modified_gmt":"2015-12-09T04:17:28","slug":"pioneer-natural-resources-investing-in-operational-efficiency-during-the-down-market-to-survive-and-then-thrive","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/pioneer-natural-resources-investing-in-operational-efficiency-during-the-down-market-to-survive-and-then-thrive\/","title":{"rendered":"Pioneer Natural Resources: Investing in operational efficiency during the down market to survive and then thrive"},"content":{"rendered":"

Not just surviving the glut, but thriving<\/strong><\/p>\n

Unconventional oil and gas producers in the United States experienced tremendous growth during the shale gas boom of the early 2010\u2019s. Now, however, oil is worth less than half of what it was 18 months ago (Exhibit 1a) [1]. This has forced producers to consolidate their positions and reduce investments to weather the down market. Among the large independent producers, Pioneer Natural Resources (NYSE: PXD)\u00a0has shown a remarkable ability to not only sustain but to increase its share price despite continued assessments that the oil energy markets are unlikely to recovery any time soon (Exhibit 1b) [2, 3]. Reviewing Pioneer\u2019s operations and business models reveals some interesting features that enable them to increase their operational efficiency, improve their social license to operate, and position themselves to aggressively capture value when the market picks up again.<\/p>\n

\"Exhibit<\/a>
Exhibit 1: Price and performance of relevant securities. a) crude oil commodity pricing and b) Pioneer Natural Resources stock. Source: New York Times and Yahoo Finance.<\/figcaption><\/figure>\n

Sustainably cutting costs<\/strong><\/p>\n

The basics of the business model for an unconventional exploration and production firm (i.e., an oil and gas firm that uses hydraulic fracturing to tap previously unusable coal bed methane and shale gas reserves) is to cost effectively discover, drill, fracture, produce, and deliver hydrocarbon resources to the market. Each step along this process requires numerous inputs from a robust supply chain, high operating proficiency, and a bit of luck.<\/p>\n

One key aspect of Pioneer\u2019s drilling operations is optimizing the time it takes to drill a well (including the associated laterals), stimulating the well through fracturing (typically using gel fracturing techniques with sand proppants), and completing the well for production (video description below). A metric used to describe the time it takes from the commencement of drilling until the well is completed and hydrocarbons are flowing to the surface for collection is the \u201cspud-to-POP\u201d time. During Q3 2015 Pioneer reported that it was able to reduce the spud-to-POP time for a 3-well pad to an average of 25 days compared 34 days observed at the beginning of 2015 [2]. They attribute this reduction to innovations in their well casing design and a growing familiarity with drilling in specific formations that has led to a sort of standardization of drilling practices for key intervals within a basin [2].<\/p>\n