HOUSTON (Reuters) - Pioneer Natural Resources (PXD.N) will boost its 2018 capital spending budget by roughly $450 million to address rising costs and to increase its drilling and well-completion activities, the company said on Wednesday.
The company expects to spend between $3.3 billion and $3.4 billion in 2018, up from $2.9 billion. About 35 percent of the increase will go toward drilling and well completions, and 50 to 60 percent will be allocated to rising costs, the company told analysts during a quarterly earnings call.
“We’ve had a more significant increase in costs this year than we would have assumed,” Chief Executive Officer Timothy Dove said during the call.
Pipeline constraints that are pushing down the price of Permian Basin crude could hamper the increase in service costs as companies opt to delay completing some wells, Dove added.
Dove anticipates service inflation to become a bigger issue in 2020 and 2021, when new pipeline connections begin to relieve the bottlenecks, spurring operators to frack wells they had drilled when prices were lower but had not completed.
Rival independent oil producer EOG Resources (EOG.N) last week said it expected service inflation to rise by five to 10 percent next year.
Pioneer’s shares had jumped in early morning trading, but were little changed mid-morning at about $186.38.
The company said it would add four rigs this year and roughly 60 well completions in the second half of 2018.
Pioneer, which like peers Anadarko Petroleum Corp (APC.N) and Devon Energy (DVN.N) took a hit on commodity derivatives during the quarter, said it would receive Brent-related pricing on 90 percent of its Permian oil pricing through 2021 and would tie other contracts to the WTI Cushing price through 2020.
“Pioneer is primed for strong 2019 growth, especially now that it has eliminated all Midland oil price exposure through 2020,” analysts from researcher Cowen & Co wrote in a note on Tuesday.
The company exported some 103,000 barrels of oil per day during the second quarter and expects those volumes to rise as it gains access to expanded export facilities.
Pioneer estimated it sent ‘a couple’ of cargoes to China this year, but none recently, Chief Financial Officer Rich Dealy told an analyst who questioned the potential impact of Chinese tariffs on U.S. oil.
“It’s a global market and the barrels move around to find a home where they need to be,” Dealy said.
Reporting by Liz Hampton; Editing by Bernadette Baum