Pioneer Reports Second Quarter 2004 Results

Pioneer Natural Resources Company (NYSE:PXD) announced financial and operating results for the quarter ended June 30, 2004.

Pioneer reported net income of $69.7 million, or $0.58 per diluted share, for the second quarter of 2004 and $129.9 million, or $1.08 per diluted share, for the six months ended June 30, 2004. For the same periods last year, Pioneer reported net income of $77.2 million, or $0.65 per diluted share, and $161.4 million, or $1.36 per diluted share, respectively. For comparative purposes, the 2004 results include noncash deferred income tax expense of $47.1 million and $79.9 million for the three and six month periods, respectively, while the corresponding 2003 results included nominal amounts of noncash deferred income tax benefits. The significant year-to-year change in deferred income taxes is principally attributable to the Company's reversal of its deferred tax valuation allowance in the U.S. during the third quarter of 2003.

Income before income taxes and cumulative effect of change in accounting principles increased by $41.6 million, or 52%, and $70.5 million, or 47%, during the three and six months ended June 30, 2004, respectively, as compared to the same periods in 2003.

Cash flow from operations for the second quarter was a record $264.7 million compared to $189.9 million for the same period in 2003. The Company reduced long-term debt by $65.3 million during the second quarter of 2004 to $1.39 billion and repurchased 320,000 shares of outstanding common stock bringing year-to-date repurchases to 503,300 shares.

Second quarter oil and gas sales averaged 187,391 barrels per day (BPD) on a barrel oil equivalent (BOE) basis and represented another record quarter for Pioneer. Second quarter oil sales averaged 44,880 BPD and natural gas liquids sales averaged 22,219 BPD. Gas sales in the second quarter averaged 722 million cubic feet per day (MMcfpd). Realized prices for oil and natural gas liquids for the quarter were $27.94 and $22.92 per barrel, respectively. Realized Argentine oil prices decreased during the second quarter due to the implementation of a new formula for domestic oil prices to bring them in approximate parity with oil exports that are subject to a 20% export tax. The realized price for gas was $4.36 per thousand cubic feet (Mcf), while North American gas prices averaged $5.12 per Mcf. Argentine gas prices increased 14% during the second quarter as compared to the prior year quarter, as a result of the federal decree outlining future gas price increases during the next two years becoming effective in May.

Second quarter production costs averaged $5.60 per BOE. Second quarter production costs included two months of fixed lease operating expenses associated with the phased start-up of the Devils Tower project in May. As additional Devils Tower wells are completed during the remainder of 2004 and into 2005, the fixed costs per BOE of this project are expected to decline.

Exploration and abandonment costs of $39.7 million for the quarter include $17.2 million of dry hole and abandonment costs that were primarily attributable to a dry hole in Equatorial Guinea and the abandonment of a well that was drilled in 2002 along the southern portion of the Olowi block oil accumulation in Gabon which is not included in the current development plan. Also included were $20.7 million of geologic and geophysical expenses including seismic costs in Argentina and Alaska and $1.8 million of delay rentals and unproved acreage abandonments.

Income tax expense for the quarter resulted in a consolidated effective tax rate of approximately 43%. The effective tax rate is higher than the U.S. federal and state statutory rates (approximately 36.5%) primarily due to the aforementioned international exploration and abandonment expenses that created deferred tax benefits that cannot be recognized until sufficient future taxable income in those countries is assured.

For the same quarter last year, Pioneer reported oil sales of 32,079 BPD, natural gas liquids sales of 22,656 BPD and gas sales of 626 MMcfpd. Realized prices for the 2003 second quarter were $24.25 per barrel for oil, $17.92 per barrel for natural gas liquids and $4.15 per Mcf for gas, while North American gas prices averaged $4.86 per Mcf.

Update on Proposed Merger with Evergreen Resources, Inc. ("Evergreen")

Integration preparation is well underway with a number of Pioneer's key employees preparing to join Evergreen's team in Denver. Evergreen is acquiring two additional coil tubing rigs and two additional fracture stimulation units that will be instrumental in Pioneer's plan to accelerate drilling in the Raton Basin to approximately 300 wells per year. Pioneer anticipates that $8 million to $10 million of general and administrative costs will be saved by combining the companies' operations. "I am very pleased with our progress in the integration of the Pioneer/Evergreen merger and look forward to a successful closing in September. Upon completion of the merger, we will have an even stronger base of North American assets, a longer reserve life, a robust inventory of lower-risk development opportunities and sufficient excess cash flow to invest in our high-impact commercialization projects and exploration prospects around the world," stated Scott D. Sheffield, Chairman and CEO.

The waiting period under the Hart-Scott-Rodino filing expired July 22, 2004. The Form S-4 pertaining to the merger has been filed with the Securities and Exchange Commission, and Pioneer and Evergreen are awaiting final clearance to prepare and mail materials to solicit stockholder approval. The companies will issue news releases as soon as the dates for the special meetings of stockholders have been established.

Operations Update

The deepwater Gulf of Mexico Devils Tower field began producing in May, and is currently producing from two wells. Six additional wells are awaiting completion during the next several months, including two during the third quarter. Goldfinger and Triton (25% working interest or "WI"), satellite discoveries to the Devils Tower field, are expected to be jointly tied back to the Devils Tower spar with first production expected in 2005. In mid-June, Pioneer achieved first production from its Tomahawk and Raptor fields (100% WI) in the western deepwater Gulf of Mexico, both subsea tiebacks to the Falcon field facilities. Completion of the fields in just ten months established a new record for deepwater development. In June, Pioneer participated in a discovery on the Thunder Hawk (12.5% WI) prospect at Mississippi Canyon Block 734. The sidetrack well encountered in excess of 300 feet of net oil pay in two high-quality reservoir zones, and the partners are currently evaluating appraisal and development options, with an additional well to further delineate the field likely to commence in late 2004. In the second quarter, Pioneer was awarded leases on 19 Gulf of Mexico blocks covering approximately 102,000 acres, of which 14 are located in the deepwater.

Pioneer is participating in a joint exploration program in the National Petroleum Reserve-Alaska (NPR-A). Pioneer was the apparent high co-bidder (20% WI) on 63 tracts covering approximately 717,000 acres in the NPR-A Northwest Planning Area and also acquired a 20% WI in 167,000 acres in the adjacent NPR-A Northeast Planning Area and in federal offshore blocks.

Onshore development continues with 11 onshore rigs running in the U.S. and five rigs running in Argentina. During the first six months of the year, Pioneer successfully completed 117 wells in the U.S., 31 wells in Argentina and 26 wells in Canada.

In Argentina, Pioneer completed the expansion of its Loma Negra gas plant in Neuquen and a 20-mile pipeline to deliver gas from the new reserves being developed in the Portezuelos and Anticlinal Campamento fields located west of the plant. Gas is being produced in Argentina at record levels, and the increased plant capacity will maximize the recovery of gas liquids.

In Tunisia, a new discovery, Dalia-1 (28% WI), encountered several oil and gas bearing zones. The well was placed on production July 17 and is currently producing at an initial rate of approximately 1,600 BPD from one zone. Upon completion of the initial production phase, the well is expected to produce from multiple zones at significantly higher rates. In the adjacent Hawa field, a development well, Hawa-2 (28% WI), commenced drilling July 21.

In West Africa, Pioneer acquired a 40% WI in the Production Sharing Contract for Block H offshore Equatorial Guinea. The Company has identified multiple prospects on the 400,000 acres covered by the blocks. The first exploration well, Bravo-1, was unsuccessful, and a second well is planned for 2005. In Gabon, Pioneer received governmental approval of its Exclusive Exploitation Agreement and is working toward finalizing the plans for field development.

Financial Outlook

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.

Third quarter 2004 production is expected to average 185,000 to 200,000 BOE per day, reflecting the incremental production expected from Devils Tower, Tomahawk and Raptor, the variability of oil cargo shipments in Tunisia and South Africa, and the seasonal increase in gas demand during Argentina's winter season. Third quarter lease operating expenses (including production and ad valorem taxes) are expected to average $5.40 to $5.90 per BOE based on current NYMEX strip prices for oil and gas. Depreciation, depletion and amortization expense is expected to average $8.75 to $9.25 per BOE as a greater proportion of the Company's production is being produced from higher-cost basis deepwater Gulf of Mexico and South Africa properties. Total exploration and abandonment expense is expected to be $25 million to $45 million. General and administrative expense is expected to be $17 million to $19 million. Interest expense is expected to be $21 million to $24 million and accretion of discount on asset retirement obligations is expected to be approximately $2 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 $4 million to $8 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.

The third quarter forecast excludes any potential effects of the proposed merger with Evergreen. Pioneer expects to update its forecasts for the quarter upon completion of the merger.