Pioneer has added proved reserves totaling 110 million barrels oil equivalent (MMBOE) during 2008 from discoveries, extensions, technical revisions and acquisitions. These additions equate to 246% of full-year 2008 production. Approximately 87% of the additions (96 MMBOE) resulted from drilling success and performance improvements in Pioneer's core U.S. areas (Spraberry, Raton, Edwards Trend, Mid-Continent, Barnett Shale and Alaska). The remaining 13% (14 MMBOE) was attributable to bolt-on acquisitions in the Spraberry, Edwards Trend and Barnett Shale areas.
The drillbit finding and development (F&D) cost for the proved reserve additions from drilling success and performance improvements (discoveries, extensions and technical revisions) was $13.82 per barrel oil equivalent (BOE). This result reflected a 39% improvement compared to 2007 and beat Pioneer's targeted drillbit F&D cost for 2008 of $15 to $20 per BOE.
Scott D. Sheffield, Pioneer's Chairman and CEO, stated, "We delivered another strong year of proved reserve replacement with the drillbit and again reduced our organic F&D cost, despite the upward pressure on drilling and development costs that we experienced for most of the year. This performance demonstrates the quality of our core assets and the potential for continuing growth in the future."
Sheffield continued, "In the U.S., reserve additions were attributable to our Wolfberry play, our ongoing 40-acre drilling program and the implementation of our 20-acre downspacing initiative in the Spraberry field. We also benefited from additional discoveries in the Edwards Trend and expansion efforts in the Pierre Shale and Barnett Shale. In Alaska, results from our Oooguruk drilling are better than anticipated. Results in Tunisia were below expectations due to a combination of factors, including several wells awaiting testing, gas discoveries which cannot be booked at this time and two unsuccessful wells. Over the past three years, we have added significant reserves in Tunisia at an attractive F&D cost of approximately $9 per barrel and are optimistic about future growth opportunities."
Total proved reserve additions of 110 MMBOE during 2008 were partially offset by negative price revisions totaling 69 MMBOE. As required by current Securities and Exchange Commission (SEC) reporting rules, year-end proved reserve volumes are calculated using prices on December 31, 2008. The price of oil on December 31, 2008 was approximately $45 per barrel, less than half of the approximately $96 per barrel level on the last day of 2007 when Pioneer’s proved reserves were last reported. The SEC also requires that proved reserves be calculated using service and production costs indicative of late-2008 levels. The dramatic decline in the price of oil, coupled with service and production costs that were much higher than could be supported by the lower year-end commodity prices on an ongoing basis, were the primary contributors to the negative price revisions.
Pioneer would expect to recover approximately 75% of the negative price revisions if oil recovered to $60 per barrel and year-end 2008 production costs declined by 10%.
The SEC recently published new rules for reporting year-end reserves which will go into effect for the calendar year 2009. Pursuant to the new rules, prices to be used to calculate year-end reserves will be based on the average of the prices that were in effect on the first trading day of each calendar month of the year rather than on the price that was in effect on the last trading day of the year. If Pioneer had been able to use 12-month average pricing for 2008 based on the upcoming SEC rules (approximately $102 per barrel for oil and $9 per thousand cubic feet for gas), the Company would not have experienced any negative price revisions.
The table below shows the proved reserves that would be recaptured from the negative price revisions of 69 MMBOE if various NYMEX price and production cost sensitivities were used instead of those in effect on December 31, 2008.
The Company expects production costs to decline more than the 10% assumed in the above sensitivity cases, but used 10% to be conservative. The Company was also conservative in keeping well costs at December 2008 levels, recognizing that these costs have already decreased significantly.
After taking into account the Company's reserve adds during 2008, offset by the negative price revisions and production during the year, total proved oil and gas reserves were 960 MMBOE as of December 31, 2008, essentially flat with year-end 2007. Approximately 97% of these reserves are in the United States and 58% are proved developed (PD). Approximately 52% of the Company's proved reserves are gas and 48% are oil and natural gas liquids. Pioneer's reserves are long-lived with a total reserves-to-production ratio of approximately 21 years and a PD reserves-to-production ratio of 12 years. The Company's long-lived reserves, with very low relative production decline rates, are particularly attractive in the current low commodity price environment in which industry drilling activity is significantly curtailed.
Pioneer's capital spending for exploration and development activities during 2008 totaled $1.23 billion, which was approximately 5% below its full-year capital budget of $1.3 billion (which excludes acquisitions, asset retirement obligations, capitalized interest and geological and geophysical G&A). Total costs incurred were $1.46 billion (which includes exploration and development spending, acquisitions, asset retirement obligations, capitalized interest and geological and geophysical G&A).
The low commodity prices and higher costs at year-end 2008 resulted in a pre-tax present value of future net cash flows discounted at 10% (PV-10) of approximately $3.9 billion for Pioneer's proved reserves. The table below shows how the PV-10 value would increase using the same NYMEX price and production cost sensitivities listed above.
Netherland, Sewell & Associates, Inc. (NSAI), an independent reserve engineering firm, audited the proved reserves of significant fields. NSAI's audit covered properties representing approximately 87% of Pioneer's total proved reserves at year-end 2008.
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