The 2006 capital budget reflects Pioneer's strategic initiatives
announced during 2005 to increase its focus on North American onshore
development activities and lower-risk resource plays. The capital
budget is allocated as follows:
-- 70% for development activities -- 53 percent for low-risk development drilling in onshore North American core assets -- 17 percent to develop new projects discovered or sanctioned in 2005 -- 20 percent to test attractive resource plays onshore North America and Tunisia -- 10 percent for high-impact exploration in the U.S. and West Africa
More than 80 percent of the capital budget is directed toward onshore low-risk North American activities ranging from development drilling in core areas to wells testing new coalbed methane (CBM) resource projects. The reduction in higher-risk exploration capital, from 30 percent in 2005 to 10 percent this year, reflects Pioneer's commitment to significantly decrease its spending on higher-risk exploration.
Pioneer is accelerating low-risk development drilling in its core areas in the U.S. and Canada and expects to drill approximately 950 development wells primarily in the Spraberry, Raton, Pawnee, and Horseshoe Canyon fields. The company will be active in the development of two larger-scale projects, the Oooguruk field on the North Slope of Alaska and a gas development project off the coast of South Africa. The capital budget also includes investments to initiate development of the Clipper discovery in the deepwater Gulf of Mexico.
To expand and potentially establish new onshore North American resource plays, Pioneer also plans to drill approximately 110 lower-risk exploration and appraisal wells. In the U.S., the Company will continue to evaluate the potential to expand its South Texas portfolio testing prospects that are analogous to its Pawnee field in the Edwards Reef trend. CBM pilots are planned in three Rocky Mountain basins and in southern Canada. Pioneer also plans to expand its Silurian resource drilling program onshore Tunisia.
The 2006 high-impact exploration budget includes plans to drill three wells in Alaska, two wells in West Africa, one to two wells in Mississippi and two wells to test amplitudes related to the Clipper discovery.
Pioneer intends to fund its 2006 capital program with cash flow from operations and a portion of the proceeds related to the divestiture of assets in the deepwater Gulf of Mexico and Argentina. By closing these divestitures, Pioneer is delivering the initiatives launched last year and establishing a strong platform for growth that will improve performance and enhance shareholder value.
By focusing on the lower-risk, predictable oil and gas basins in North America that will represent 98 percent of Pioneer's proved reserve base and continuing the development of approved projects, Pioneer expects 5-year compound annual production growth in excess of 10 percent. Success with emerging resource plays, bolt-on acquisitions, or high-impact exploration offers additional production growth upside. All of these projects offer excellent returns, and the emerging resource plays expose Pioneer to more than 1 billion barrels of oil equivalent gross resources.
Pioneer expects to exit 2006 with average daily production of 95,000 to 100,000 barrels oil equivalent per day (BOEPD), a 10 percent increase from the 2005 average daily production from comparable assets that excludes the assets being divested as discussed above and the incremental year-on-year production sold as part of the VPPs completed in 2005. Production growth in 2007 and 2008 is expected to reflect continued core asset drilling and the start up of production from development projects in South Africa and Alaska.
"I believe that this capital program and our 2006 activities will provide the initial momentum we need to achieve our 5-year goal of delivering top-quartile production and reserve per share growth in order to achieve top-quartile stock price growth for our shareholders," stated Scott Sheffield, Pioneer's Chairman and CEO.
Pioneer's 2006 development drilling program is well underway. Currently, Pioneer has 18 onshore rigs running in the U.S. and three in Canada.
Pioneer has initiated its onshore program in South Texas and has recently drilled two successful wells in the Edwards Reef trend testing prospects that are analogous to Pioneer's Pawnee field. Both wells had initial production tests in excess of 2.5 million cubic feet per day before stimulation. During 2006, Pioneer plans to drill 10 to 15 development wells in the Pawnee field. An additional 8 to 13 low-risk exploration wells are planned along the Edwards Reef trend, six of which are expected to be completed by July.
On the North Slope of Alaska, the Company is drilling the second of a three-well exploration campaign. The first well in the Storms prospect area was unsuccessful. After sanctioning the Oooguruk field development in January, Pioneer is actively progressing construction of the gravel island from which the field will be developed in 2007 for initial production in 2008. This project is expected to deliver gross oil reserve potential ranging from 50 to 90 million barrels. Pioneer is the operator of the project with a 70 percent working interest.
In Tunisia, Pioneer has acquired the remaining equity interest and assumed operatorship of the Jenein Nord block west of and adjacent to the Adam Concession. In the Adam Concession, the Company has drilled eight successful wells with current gross production of approximately 17,000 barrels of oil per day. Pioneer is currently acquiring additional 3-D seismic data covering acreage on both Adam and Jenein Nord. Offshore South Africa, development drilling has begun on the South Coast Gas project in anticipation of first gas sales during the second half of 2007.
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