Approximately 71 percent, or $177 million, of the total 2005 capital expenditure budget is allocated to lower-risk exploitation projects while the remaining $73 million or 29 percent is allocated to exploration.
About 64 percent of total exploitation spending, or $114 million, is allocated to drilling, workovers, seismic surveys and secondary recovery projects aimed at continuing to increase production in Argentina. The four-rig drilling program employed during 2004 was expanded late in the third quarter 2004 to five rigs. Drilling will account for about 60 percent of the Argentina exploitation budget, with the expectation of continuing to run five drilling rigs and increasing the number of wells drilled by 12 percent to 108 wells, principally in the San Jorge basin. This represents the highest level of activity in terms of the number of wells to be drilled and compares to an expected total of about 96 wells in 2004. The remaining 40 percent of the Argentina exploitation budget is allocated for the completion of 83 workovers in the San Jorge basin, the initiation of four waterflood projects and at least two new 3-D seismic surveys. Waterflood production response, though initially modest, is expected later in 2005. The 3-D seismic planned for the 2005 budget will add approximately 90,000 acres, or about seven percent additional coverage, bringing the total 3-D coverage to 58 percent of the company's 1.2 million gross operated acreage in Argentina. Addition of 3-D seismic coverage has historically provided future drilling and production visibility. Since entering Argentina in 1995, Vintage estimates it has drilled over 400 wells based on 3-D seismic with a 96 percent success rate.
The U.S. exploitation budget of $37 million accounts for 21 percent of the total exploitation budget spending. The planned 2005 domestic drilling program consists of 20 wells in California, Louisiana, Oklahoma and Texas. Areas of emphasis include continuation of development infill drilling programs at Gilmer South field in East Texas, expanded horizontal drilling programs in Luling and Darst Creek fields in South Central Texas and at our North Antelope Hills field in Southern California. The 2005 domestic workover program includes 46 planned projects with continued emphasis on recompletions at San Miguelito, Rincon, and Rio Viejo fields in Southern California, the West Ranch field in South Texas, and the South Pass field in Louisiana state waters.
Facilities construction and development drilling in Yemen account for the remaining $26 million, or 15 percent of Vintage's 2005 exploitation budget. Approximately $19 million in capital expenditures are planned during the first two quarters of 2005 to complete the construction and installation of the processing and pipeline facilities near the An Nagyah light oil discovery, bringing the total expenditures for the facilities and pipeline in 2004 and 2005 to $30 million. These facilities are designed to process up to 10,000 gross (5,200 net) barrels of oil per day and are expected to be completed late in the second quarter of 2005. The remaining $7 million allocated to Yemen exploitation is for the drilling of four development wells which will complete the development of the An Nagyah field during 2005.
Approximately 29 percent of the 2005 capital budget, or $73 million, will be allocated to exploration projects. About 89 percent of the exploration budget will be spent in the United States and the remainder will be spent on international projects.
In the United States, $65 million will be spent on exploration activities. Of this amount, $38 million has been allocated to conventional exploration activities primarily targeting natural gas that can be brought to production quickly. This endeavor anticipates 11 exploration wells to test 10 prospects primarily located in the onshore and offshore Texas Gulf Coast. These projects are similar geologically to plays in which the company was successful during 2004. The remaining $27 million has been allocated to the unconventional gas resource exploration program. This activity is projected to result in the drilling of 10 wells in 2005 to test four play concepts identified during 2004.
Internationally, $8 million has been allocated to exploration, with approximately 76 percent dedicated to the continuing exploration effort in Yemen targeting high impact plays. Current plans in Yemen anticipate the drilling of two exploration wells and the continued assessment of the development potential of the discovery at Harmel.
Targets for 2005
The 2005 non-acquisition capital budget is aimed at growing production from internally generated sources in the short-term while devoting significant resources to projects that can provide longer-term growth opportunities. Approximately $80 million, or 32 percent of the total 2005 non-acquisition capital budget, is comprised of exploration and development expenditures that support organic production growth in 2006 and beyond. Vintage's target for 2005 production of 25.8 million does not assume any contribution from exploration expenditures for drilling in 2005. This targeted production level takes into account the impact of the disposition of the company's Canadian assets scheduled to close on November 30, 2004, and is a five percent increase over the estimated 2004 production of 24.6 million BOE pro forma for the Canadian divestiture.
The company has assumed an average NYMEX price for the year 2005 of $40 per barrel of oil versus its revised 2004 assumption of $42 per barrel. For natural gas, the company has increased its assumed NYMEX price for the year to $6.50 per MMBtu from its revised 2004 assumption of $6.10 per MMBtu. The oil price received in 2005 as a percent of the NYMEX price is anticipated to be 78 percent compared to the 82 percent estimated for 2004. The gas price received in 2005 as a percent of the NYMEX price is anticipated to decrease to 68 percent from 69 percent assumed for 2004.
Given its preliminary outlook for the 2005 capital budget, production, assumed prices and costs enumerated in the accompanying table, "Vintage Petroleum, Inc. Preliminary Targets for 2005," as well as other expectations, Vintage has established 2005 targets for cash flow and EBITDAX of $320 million and $440 million, respectively.
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