Bringing it closer to becoming a pure play Permian company, Pioneer Natural Resources Co. (PXD) has put a block of about 640,000 net acres in southeast Colorado on the market.

The announcement follows Pioneer’s sale of its Eagle Ford Shale midstream business to Enterprise Products Partners LP (EPD) on June 1 for $2.15 billion. The proceeds are planned to be allocated to Pioneer’s operations in the Permian Basin.

Pioneer’s sale in southeast Colorado is another move along those same lines for the Irving, Texas-based company, said Gabriele Sorbara, vice president of E&P/energy research at Topeka Capital Markets.

“Considering Pioneer’s tremendous running room in the emerging Wolfcamp shale plays, we believe this asset would likely be monetized to fund the growth in the Permian Basin," Sorbara said.

Sorbara said the company already has a strong liquidity position, with about $1.3 billion pro forma on the cash.

“They’re in good shape; they have good assets,” he said. “Pioneer is going to be able to weather this downturn better than anybody.”

Pioneer’s acreage in southeast Colorado is located in Bent, Cheyenne, Crowley, Elbert, Kiowa, Kit Carson, Lincoln, Prowers and Washington counties.

The company acquired the position in 2013 for about $75 per acre, he said. Shortly after, the land was going for north of $300 per acre.

The company’s acreage offsets impressive results in the Mississippian zone from Chama Oil & Minerals LLC and Nighthawk Energy Plc. Pioneer has permitted six vertical wells in the area to test various concepts, but the results haven’t been disclosed, Sobara said.

He said the package could go for anywhere between $100-200 an acre, equating to a $64 million to $128 million sale. However, there is potential for a pleasant surprise given the amount of private equity money currently floating around the industry.

"There could be a team that wants to really get this asset and could come in and pay a premium for it because it is a good starter company type package," he said.

In this case, the acreage could go for more than of $200 per acre—a nice return on its investment, Sorbara said.

The proceeds would be put to work in the Midland Basin and Eagle Ford, where rates-of-return are above 50% at current commodity prices, he said.

"We like the Pioneer story for its position in the Midland Basin and Eagle Ford Shale, and believe nothing is priced into shares for this asset, which could turn out to be a surprise source of funds with the growing interest in the area," he said.

According to Sorbara, other publicly traded operators with exposure or adding acreage to the stacked pay targets in southeast Colorado include Anadarko Petroleum Corp. (APC), Chesapeake Energy Corp. (CHK), Devon Energy Corp. (DVN), Newfield Exploration Co. (NFX) and Southwestern Energy Co. (SWN).

Meagher Energy Advisors has been retained by the company to handle the sale.

Contact the author, Emily Moser, emoser@hartenergy.com.

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