The upgrade reflects Pioneer's improved credit profile that has been driven by increased production from recent exploration successes as well as maintaining a conservative financial strategy throughout the high commodity price environment that has existed over the last few years. Pioneer's net production increased 36% in 2003 to 56.5 million barrels of oil equivalent (MMboe) from 41.4 MMboe in 2002. This increase reversed declines in production that occurred in 1999, 2000, 2001 and 2002. In 2004, Pioneer is expected to increase production by at least another 15% over 2003's levels. Resultantly, Pioneer's cash flow and credit metrics should be robust. For 2004, Pioneer should generate interest coverage, as measured by EBITDAX/interest, of least 9 times (x) and debt/EBITDAX should be under 2x in a hydrocarbon price environment of $29WTI/$5.00Henry Hub. Even in a lower price scenario, interest coverage should be at least 5x and debt/EBITDAX should be less than 3x. The company's leverage as measured by debt/proven boe is well within investment grade parameters. Debt/boe was $1.97/proven boe and debt/proven developed producing boe was $3.03 at the end of 2003.
Operationally, Pioneer has done a good job of replacing reserves over the last few years at economic costs. In 2003, the company replaced 193% of its production at a finding, development and acquisition (FD&A) cost of $6.64 per boe. Over the last five years, Pioneer replaced 199% of production at a weighted FD&A cost of $5.54 per boe. Over the same time period, the company organically replaced 159% of its production at a weighted F&D cost of $5.28 per boe. Overall, Pioneer's reserve base of 789 MMboe was 65% proven developed at year-end and, based on 2004 production estimates, currently has reserve life of between 11-12 years.
An offsetting factor would include Pioneer's relatively short reserve lives of some of its newly commenced producing properties (i.e. Falcon, Canyon Express, and Sable). These fields have lives of 3-7 years. This is somewhat mitigated by the company's very long reserve life of its US onshore properties which have reserve lives of nearly 20 years. Going forward, Pioneer will need to demonstrate that it can continue to replace reserves at economic costs since much of the increased production that has taken place will not be long-lived.
Pioneer is a large independent oil and gas exploration and production company with operations in the United States, Canada, Argentina, South Africa, Gabon and Tunisia. Proved reserves at year-end 2003 were 789 million barrels of oil equivalent with 81% of those reserves located in North America. The company's headquarters are in Irving, Texas.
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