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Pioneer Natural Resources Announces Acquisition of Carmeuse Industrial Sands

DALLAS--(BUSINESS WIRE)--Mar. 5, 2012-- Pioneer Natural Resources Company (NYSE:PXD) (“Pioneer” or “the Company”) today announced the Company has signed an agreement with a subsidiary of Carmeuse Holding S.A. (Luxemburg) to acquire its U.S. industrial sands business, Carmeuse Industrial Sands (“CIS”), for approximately $297 million, before normal closing adjustments.

CIS is the number one producer of Hickory frac sand (Brady Brown®) used as proppant for fracture stimulating oil and gas wells in the U.S. Hickory sand is considered to be the highest quality brown sand for fracture stimulation. CIS’ sand mine in Brady, Texas, has more than 30 years of proven brown sand reserve life and is the industry’s largest resource base for brown sand in the U.S. The Brady mine currently has sales capacity of approximately one million tons annually.

Scott Sheffield, Chairman and CEO, stated, “When Carmeuse recently announced plans to sell its U.S. sand business, we viewed this as a strategic opportunity to secure high-quality, low-cost and logistically advantaged brown sand supply to support our growing fracture stimulation requirements in three of our four core Texas growth assets – the Spraberry vertical, horizontal Wolfcamp Shale and Barnett Shale Combo plays. The acquisition complements Pioneer’s vertical integration strategy, which is reducing execution risk and controlling costs. By securing supply at below market prices, we expect to reduce annual capital spending by $65 million to $70 million based on our estimated sand requirements and current market prices.”

Pioneer’s annual demand for proppant to support the Company’s fracture stimulation operations is forecasted to increase from 1.2 million tons in 2012 to 1.6 million tons in 2015 as drilling activity continues to ramp up in the Spraberry vertical, horizontal Wolfcamp Shale, Eagle Ford Shale and Barnett Shale Combo plays. Seventy percent to eighty percent of the Company’s forecasted proppant demand is brown sand for the Spraberry vertical, horizontal Wolfcamp Shale and Barnett Shale Combo plays. Pioneer’s primary source for brown sand is CIS’ Brady mine. Prior to the acquisition, the Company expected approximately 700 thousand tons, or 60%, of its forecasted 2013 brown sand requirements to be sourced from this location.

The supply of brown sand is expected to continue to be tight as a result of increasing shale play drilling, with the price of brown sand expected to escalate further as the growth in demand for this proppant outpaces new supplies. Other brown sand mines are primarily supplying large service companies. White and resin coated sand alternatives are more than two times and seven times the cost of Brady sand (inclusive of transportation), respectively, and are not necessary for most Spraberry vertical, horizontal Wolfcamp Shale and Barnett Shale Combo fracture stimulations.

Assuming Pioneer could replace its current brown sand supply at market prices and would have to substitute its incremental brown sand requirements (300 thousand tons in 2013) with white sand due to lack of brown sand availability, Pioneer estimates that it will save $65 million to $70 million per year by acquiring CIS. After taking into account an additional $10 million of annual cash flow from CIS’ other assets, Pioneer’s total annual savings are estimated to be $75 million to $80 million.

The acquisition also provides Pioneer with significant upside potential. First, output from the Brady mine can be doubled from one million tons per year to two million tons per year, which would support any future increases in Spraberry vertical, horizontal Wolfcamp Shale and Barnett Shale Combo drilling activity above the Company’s currently announced drilling growth plans. Second, CIS has 23 million tons of white sand reserves in Wisconsin, where plans to develop a mine with a production capacity of up to one million tons per year are being progressed.

CIS is led by a highly experienced and technically proficient management team with more than 150 years of experience in the industrial sands business. This management team has agreed to join Pioneer.

The acquisition will be funded from available cash and is expected to close late in the first quarter or early in the second quarter of 2012.

CIS’ other assets, which make up a relatively small portion of the industrial sands business, include two outlets (Bakersfield, California and Colorado Springs, Colorado) for other grades of sand produced in Brady, two sand mines in Ohio (Glass Rock and Millwood) which produce oilfield and industrial sands, one sand mine in California (Orange County) which produces construction and recreational sand, and an oilfield cement material processing plant in Riverside, California.

Conference Call

On Monday, March 5, 2012, at 10:00 a.m. Central Time, Pioneer will hold a conference call and webcast to discuss the CIS acquisition, with an accompanying presentation. Instructions for listening to the call and viewing the presentation are shown below.

Internet: www.pxd.com
Select “Investors,” then “Investor Presentations” to listen to the discussion and view the presentation.

Telephone: Dial (877) 795-3599 confirmation code: 7784081 five minutes before the call. View the presentation via Pioneer’s internet address above.

A replay of the webcast will be archived on Pioneer’s website. A telephone replay will be available through March 23 by dialing (888) 203-1112 confirmation code: 7784081.

Pioneer is a large independent oil and gas exploration and production company, headquartered in Dallas, Texas, with operations in the United States. For more information, visit Pioneer’s website at www.pxd.com.

This news release contains forward-looking statements within the meaning of the safe harbor provisions of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act. These statements include any statement that does not relate strictly to historical facts. In particular, statements, express or implied, regarding the benefits of, and synergies from, the CIS acquisition and Pioneer’s sand requirements, future growth opportunities and financial condition and results of operation are forward-looking statements. These forward-looking statements are based on management’s current plans, expectations, estimates, assumptions and beliefs concerning future events. While our management considers these plans, expectations, estimates, assumptions and beliefs to be reasonable, they are inherently difficult to predict and subject to a number of risks and uncertainties. These risks and uncertainties include, but are not limited to, the satisfactory completion of all conditions precedent to the closing of the proposed CIS acquisition in accordance with the terms and conditions of the purchase agreement, risks related to mineral estimates, fluctuation of prices for sand and the risks discussed in the “Risk Factors” sections of, as well as any other cautionary language in, Pioneer’s public filings with the Securities and Exchange Commission (SEC). Actual results may differ materially from those expressed or implied in the forward-looking statements contained in this news release. Each forward-looking statement in this news release speaks only as of the date of this news release, and Pioneer undertakes no obligation to update or revise any such statement except as required by law.

Our pending CIS acquisition may not be consummated. The closing of the acquisition is subject to certain regulatory conditions and customary closing conditions, and the acquisition agreement may, in certain circumstances, be terminated.

Inaccuracies in estimates of mineral reserves and resource deposits could result in lower than expected supplies and sales and higher than expected costs. The proved reserve estimates contained in this news release have been calculated in compliance with the SEC’s Industry Guide 7 and are based on an independent review by mining and geological consultants engaged by CIS in 2011. However, commercial sand reserve estimates are necessarily imprecise and depend to some extent on statistical inferences drawn from available drilling data, which may prove unreliable. There are numerous uncertainties inherent in estimating quantities and qualities of commercial sand reserves and resources and costs to mine recoverable reserves, including many factors beyond Pioneer’s control. Estimates of economically recoverable commercial sand reserves necessarily depend on a number of factors and assumptions, all of which may vary considerably from actual results, such as:

  • geological and mining conditions and/or effects from prior mining that may not be fully identified by available data or that may differ from experience;
  • assumptions concerning future prices of commercial sand products, operating costs, mining technology improvements, development costs and reclamation costs; and
  • assumptions concerning future effects of regulation, including the issuance of required permits and taxes by governmental agencies.

Source: Pioneer Natural Resources Company

Pioneer Natural Resources
Investors:
Frank Hopkins, 972-969-4065
or
Eric Pregler, 972-969-5756
or
Media and Public Affairs:
Susan Spratlen, 972-969-4018
or
Suzanne Hicks, 972-969-4020

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