For the fourth quarter of 2004, Pioneer reported net income of $102.0 million, or $.69 per diluted share, an increase of $.21 or 44% per share above the prior year quarter net income of $.48 per diluted share. Cash flow from operations for the fourth quarter was $347.1 million, an increase of 60% compared to $217.0 million for the same period in 2003. The increase in net income and cash flow primarily resulted from a 17% increase in quarter-on-quarter oil and gas production and stronger prices for oil and gas.
Tim Dove, President and COO, stated, "We had a solid quarter as each of our divisions posted strong results, and with the addition of our new Rockies division, we've set a new production record. We expect to continue to add production from our core properties as we step up our development drilling program in 2005 leading to full-year expected production of 70 to 74 million barrels oil equivalent."
Scott Sheffield, Chairman and CEO, continued, "We built significant operational and financial strength during 2004 and have further enhanced our financial flexibility with the $593 million of proceeds we received in January by selling just 20 million barrels of oil equivalent reserves through two volumetric production payments. Adding our expected 2005 cash flow and proceeds from planned Canadian divestitures, we expect to have over $1 billion of cash available during 2005 in excess of our current capital budget. By reaching our debt reduction targets early, we now have the flexibility to aggressively repurchase shares under our new $300 million authorization and have purchased approximately 600,000 shares since the end of January.
"Our 2005 drilling programs in each of our core onshore areas are well underway. In the deepwater Gulf of Mexico, completion operations have resumed at Devils Tower and production is expected to be back on-line this week at Canyon Express. We have an active exploration program planned for the first half of this year and the financial flexibility to fund the development of its success."
For the twelve months ended December 31, 2004, net income was $312.9 million, or $2.46 per diluted share, compared to $410.6 million, or $3.46 per diluted share for the prior year which included the benefit of the Company's reversal of deferred tax valuation allowances in the U.S. Cash flow from operations for 2004 was a record $1.1 billion compared to $763.7 million in 2003. Long-term debt was $2.39 billion at year end, down $364 million from the prior year end, pro forma for the merger with Evergreen. Pioneer repurchased 1.7 million shares during the fourth quarter and 2.8 million shares for the full year.
As previously announced, the Company has changed its method for reporting field fuel, no longer recording it as revenue or expense and not including it in gas sales volumes. Under the new method, fourth quarter oil and gas sales averaged a record 191,451 barrels oil equivalent per day (BOEPD). Fourth quarter oil sales averaged 49,385 barrels per day (BPD) and natural gas liquids sales averaged 21,733 BPD. Gas sales in the fourth quarter averaged 722 million cubic feet per day (MMcfpd). This change in methodology reduced the reported quantity of gas sold for the fourth quarter of 2004 by 38 MMcfpd or 6,398 BOEPD. Fourth quarter oil and gas revenues and field operating expenses were each $21.1 million lower under this method.
Under the new method, 2004 annual oil and gas sales averaged 183,412 BOEPD. Annual oil sales averaged 46,984 BPD, natural gas liquids sales averaged 22,201 BPD and gas sales averaged 685 MMcfpd. This change in methodology reduced the reported quantity of gas sold for 2004 by 26 MMcfpd or 4,374 BOEPD. Annual oil and gas revenues and field operating expenses were each $54.3 million lower under this method.
Because the change reduces both revenue and field operating expenses by the same amount, it does not impact net income, cash flow, EBITDAX (earnings before interest, taxes, depreciation, depletion, amortization, impairment and exploration and abandonment costs) or net asset value. Prior period sales and prices have been adjusted to reflect this change.
Fourth quarter realized prices for oil and natural gas liquids were $35.80 and $30.74 per barrel, respectively. The realized price for gas was $4.45 per thousand cubic feet (Mcf), while North American realized gas prices averaged $5.24 per Mcf. Annual realized prices for oil and natural gas liquids were $31.38 and $25.65 per barrel, respectively. The annual realized price for gas was $4.33 per Mcf, while North American realized gas prices averaged $5.11 per Mcf.
Fourth quarter production costs averaged $5.72 per barrel of oil equivalent (BOE). Exploration and abandonment costs were $28.5 million for the quarter and included $4.5 million of dry hole and abandonments, $16.5 million of geologic and geophysical expenses including seismic costs and $7.5 million of delay rentals and unproved acreage abandonments. Annual 2004 production costs averaged $5.15 per BOE. Exploration and abandonment costs were $181.7 million for 2004 and included $82.8 million of dry hole and abandonments, $82.3 million of geologic and geophysical expenses including seismic costs and $16.6 million of delay rentals and unproved acreage abandonments.
For the same quarter last year, Pioneer reported total oil and gas sales of 163,888 BOEPD, including oil sales of 43,574 BPD, natural gas liquids sales of 22,889 BPD and gas sales of 585 MMcfpd (excluding field fuel volumes). Realized prices for the 2003 fourth quarter were $26.60 per barrel for oil, $19.46 per barrel for natural gas liquids and $3.58 per Mcf for gas, while North American gas prices averaged $4.14 per Mcf.
Full year 2003 total oil and gas sales averaged 151,001 BOEPD, including oil sales of 35,304 BPD, natural gas liquids sales of 22,562 BPD and gas sales of 559 MMcfpd (excluding field fuel volumes). Realized prices for 2003 were $25.59 per barrel for oil, $19.50 per barrel for natural gas liquids and $3.84 per Mcf for gas, while North American gas prices averaged $4.51 per Mcf.
Pioneer is accelerating its 2005 low-risk onshore development program, running 12 onshore rigs in the U.S. and seven rigs in Argentina. Pioneer reported record fourth quarter Argentine gas production as gas demand was strong during the summer season and gas prices continued to improve as anticipated. In Canada, Pioneer is completing its winter development program in British Columbia running two rigs and expects to commence drilling in the Company's coalbed methane play in southern Alberta during the second quarter. Production from Tunisia increased during the fourth quarter as first oil was achieved from the Hawa-2 well in the Adam producing concession in the BEK block, and the Company expects oil production from the Adam-3 well to begin during the first quarter of 2005.
In the deepwater Gulf of Mexico, repairs to the Devils Tower spar were completed ahead of schedule. The rig was placed in service on January 21, 2005 and is in the process of completing the fifth of eight Devils Tower development wells. Production from the Canyon Express gas system was halted on December 3, 2004 due to a leak in the subsea line that delivers methanol used in field operations. The leak is believed to have been caused by a Hurricane Ivan-related incident which weakened the methanol line. The line has been successfully repaired and production from the system is expected to resume this week. Pioneer expects that Canyon Express production will gradually ramp up over the next few weeks as debris is flushed from the line.
First quarter exploration activity is expected to include an appraisal well to the 2004 Thunder Hawk discovery and an exploration well on a Falcon Corridor satellite prospect in the deepwater Gulf of Mexico. In Alaska, as many as three wells are expected to test new exploration targets, and Pioneer plans to shoot seismic over newly acquired acreage. One well is planned in West Africa, and lower-risk exploration and geologic and geophysical work will also continue in Argentina, Canada and Tunisia.
The following statements are estimates based on current expectations. These forward-looking statements are subject to a number of risks and uncertainties which may cause the Company's actual results to differ materially from the following statements. The last paragraph of this release addresses certain of the risks and uncertainties to which the Company is subject.
First quarter 2005 production is expected to average 175,000 to 190,000 BOEPD excluding field fuel. This range is lower than the fourth quarter average reflecting the VPP volumes sold, more days of downtime and a gradual ramp up for the Canyon Express system, the timing of oil cargo shipments in Tunisia and South Africa which were high during the fourth quarter, and the typical seasonal decline in gas demand during Argentina's summer season.
First quarter production costs (including production and ad valorem taxes) are expected to average $6.00 to $6.50 per BOE based on current NYMEX strip prices for oil and gas. The increase over the prior quarter is a result of the retention of operating costs related to the VPP volumes sold, an increase in ad valorem taxes and additional workovers planned during the Canadian winter drilling season. Production costs are expected to decline in the second quarter of 2005 as lower-cost volumes resume from the deepwater Gulf of Mexico and workovers return to more normal levels. Depreciation, depletion and amortization expense is expected to average $8.75 to $9.25 per BOE.
Total exploration and abandonment expense is expected to be $80 million to $110 million. As indicated in the operations update above, several exploration wells and significant seismic investments are planned during the quarter, front-end loading the exploration program for the year. General and administrative expense is expected to be $24 million to $26 million. Interest expense is expected to be $33 million to $36 million, and accretion of discount on asset retirement obligations is expected to be approximately $2 million to $3 million.
The Company's effective income tax rate is expected to range from 36% to 39% based on current capital spending plans, including cash income taxes of $5 million to $10 million that are principally related to Argentine and Tunisian income taxes and nominal alternative minimum tax in the U.S. Other than in Argentina and Tunisia, the Company continues to benefit from the carryforward of net operating losses and other positive tax attributes.
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