OPEC should be worried. Surging production from new shale plays like the North Dakota Bakken and the Texas Eagle Ford have already pushed the United States ahead of Russia and Saudi Arabia in energy output. Just this year America looks to take the title of the world's largest energy producer. Day by day, the once dominant oil cartel is losing its biggest customer.
But one company is sitting on an oil field that could be larger than the Bakken and the Eagle Ford combined. And smart money investors like George Soros, T. Boone Pickens, and John Paulson are building their positions. Yes, this is a stock keeping OPEC up at night.
The biggest find since the Bakken
I'm talking of course about Pioneer Natural Resources (NYSE:PXD). And there's good reason to believe this company could join the ranks of big oil in the near future.
Pioneer is sitting on a massive oil find in West Texas called the Spraberry Wolfcamp. For decades, this field was considered the largest discovery in the world second only to Saudi Arabia's Ghawar. The problem was that the oil was packed into tight shale rock. There was no way to profitably exploit it.
But new technologies like hydraulic fracturing and horizontal drilling have finally unlocked the Wolfcamp's bounty. According to early estimates provided by Pioneer, the field contains some 50 billion barrels of oil. And that figure could be revised higher as the company completes its exploration.
But what makes the play so exciting is that the formation is actually several hydrocarbon-rich layers. This allows drillers to target several plays with a single vertical well. In some parts of the field, the pay zone can be a much as 3,500 feet thick. As CEO Scott Sheffield describes, "It's like having eight Eagle Fords or eights Bakkens on top of each other."
What's really encouraging are the strong exploration results other Wolfcamp operators are reporting. Devon Energy (NYSE:DVN), which owns 250,000 acres in the play, drilled 34 horizontal wells in the play with plans to bring 19 online in 2013. Many of these wells have posted 24-hour initial rates above 1,000 BOE/d.
Approach Resources (NASDAQ:AREX) also has a footprint in the Wolfcamp with about 170,00 gross acres in the play. Last quarter, the company completed a horizontal well, targeting the Wolfcamp A bench. This well flowed at a 30-day initial production rate of approximately 600 BOE/d, made up of 86% oil.
A solid operator too
Yet Pioneer is the single best way to play this development with over 700,000 net acres in the region. In August, the company announced that it will spend $425 million of its 2013 $1.6 billion capital expenditure budget developing the Wolfcamp with plans to double its rig count in the play over the next two years.
But Pioneer is no riverboat wildcatter. The company has great assets in other proven plays like the Eagle Ford and the Barnett Shale. Much of this is in premium, liquids-rich acreage that generates plenty of cash flow. Assuming oil prices hang above $80 per barrel, Pioneer should be able to generate enough to fund its expansion program without any major equity issues.
This is why the stock is backed by some of the smartest investors in the industry. Oil tycoon T. Boone Pickens has held onto his 30,000 share stake since the company was formed in a 1997 merger with MESA. But other billionaires like George Soros and John Paulson are also building positions.
Foolish bottom line
The Spraberry Wolfcamp is still a speculative play, and investors should watch incoming drilling results closely. But if the formation can live up to a fraction of the hype, then Pioneer Natural Resources could be a big winner. It's certainly a company investors -- and OPEC -- should keep on their watchlist.