"Gas production has been positively affected by demand and will be in the future by gas price increases in Argentina," executive VP and CFO Tim Dove said during a conference call to discuss third quarter results.
Pioneer expects a decrease in gas production this southern hemisphere summer as demand drops, but "the peaks are higher and the valleys are higher" so production in winter 2005 is expected to be higher than previous levels, Dove said.
Pioneer continues to benefit from low operating costs in Argentina due to the devaluation of the peso, and from higher gas prices implemented by a decree that increases prices gradually during the next two years.
Gas prices increased 17% from 3Q03 to an average of US$0.63 per thousand cubic feet in 3Q04, Pioneer said. Prices are expected to rise further to US$1.00 per thousand cubic feet in 2005 and return to pre-devaluation levels by 2006. Argentina's government recently signed an agreement to import 20 million cubic meters a day (mcm/d) of gas from Bolivia at a cost of US$1.60 per thousand cubic feet, which is expected to push domestic prices up further
. CRUDE PRODUCTION AND PRICES
Pioneer increased oil production 2% to 9,316b/d in the third quarter from 9,126b/d in 3Q03 driven by continued low costs as a result of the devaluation of the peso. The government has implemented a new pricing formula designed to keep gasoline prices flat, despite rising world oil prices, by bringing domestic oil prices into parity with oil exports that are subject to a 20% export tax.
Under the formula, Argentine oil producers receive 80% of WTI, less normal quality differentials, when the WTI price is above US$36/b and 86% of the WTI price when it falls below US$36/b. As a result, the NYMEX crude price differential in Argentina increased dramatically to WTI less US$11.63/b in 3Q04 from WTI less US$4.10 in the same quarter of 2003, according to supplementary information to the earnings release. Even so, given the international oil price over US$50/b, realized oil prices in Argentina increased to US$32.25/b in the third quarter from US$25.31 in 3Q03 and US$24.42 in the second quarter this year.
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