"We are very excited about 2002. The production and revenue impact from these four projects is expected to begin within seven months and continue to build through 2003, increasing 2002 production 12% to 15% and increasing 2003 production 45% to 50% over 2001 levels," stated Scott D. Sheffield, CEO and Chairman.
Canyon Express, in the deepwater Gulf of Mexico, is expected to be the first of these projects to move into the production phase with first production expected in July of 2002, adding over 100 million cubic feet (Mmcf) of natural gas per day to Pioneer's North American natural gas production, an increase of 40% from current levels.
Sable, an oil field in the shallow water offshore South Africa, is scheduled for first production in late 2002. The field is expected to increase Pioneer's worldwide oil production by approximately 12,000 to 13,000 barrels per day or approximately 35% from current levels.
Falcon, a recently announced natural gas discovery in the deepwater Gulf of Mexico, is expected to be developed during 2002 for first production in the first quarter of 2003. Pioneer's share of peak production from the field is expected to be approximately 75 Mmcf of natural gas per day and, combined with production from Canyon Express, is expected to increase North American natural gas production approximately 70% from current levels.
Devils Tower, an oil discovery in the deepwater Gulf of Mexico, is being developed for first production in the second quarter of 2003. As additional wells are brought on production through the year, the field is expected to reach full production of approximately 8,000 to 10,000 barrels of oil per day net to Pioneer, an increase to worldwide oil production of approximately 25% from current levels.
Pioneer has budgeted approximately $70 million to continue its successful exploration program in 2002. The Company plans to drill four to six wells in the Gulf of Mexico, three wells offshore Gabon, two wells offshore South Africa, and two wells in North Africa. Pioneer will continue to drill lower-risk step-out exploration wells onshore U.S. and in Argentina and plans to expand its exploration program in Canada. The Company has budgeted approximately $155 million for continued development of its core areas in the U.S., Argentina and Canada.
Pioneer has significant oil and natural gas hedges in place to protect its cash flow and lock in strong returns. In addition to the hedges monetized during the third quarter, Pioneer recently monetized a portion of its natural gas hedges for 2003 and 2004. The Company took the profit on 42.5 million cubic feet per day of its 2003 natural gas hedge position at approximately $3.15 per mcf and 50 million cubic feet per day of its 2004 natural gas hedge position at approximately $3.25 per mcf for a total profit of $26 million that will be recognized over the contract periods in 2003 and 2004. The remaining intrinsic value of Pioneer's 2002 through 2005 oil and natural gas hedges was approximately $167 million, or $1.70 per share, based on yesterday's closing NYMEX prices for oil and natural gas. Hedge contracts valued at $7.8 million, including unsettled 2001 contracts, were placed with Enron North America Corp. The remaining contracts are with a diverse group of intermediaries, principally large U.S. banks.
During 2002, Pioneer has hedges covering approximately 60% of expected North American natural gas production at an average NYMEX equivalent price of $4.30 per barrel or greater and approximately 45% of expected worldwide oil production at an average NYMEX equivalent price of $26.00 per barrel or greater. Pioneer has natural gas hedges that extend into 2005 and oil hedges through June of 2003 as outlined in its latest Form 10-Q filed with the Securities and Exchange Commission.
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