Pioneer Reports First Quarter 2006 Results
Pioneer Natural Resources Company (NYSE: PXD) announced financial and operating results for the quarter ended March 31, 2006.
Pioneer reported net income of $543 million, or $4.28 per diluted share compared to net income for the same quarter last year of $85 million, or $.58 per diluted share.
First quarter oil and gas sales from continuing operations exceeded guidance, averaging 95,250 barrels oil equivalent per day (BOEPD).
North American production rose 6% from equivalent volumetric production payment (VPP) adjusted 2005 first quarter levels, reflecting the initial results from Pioneer's accelerated production growth program.
-- North American fields represented 92% of first quarter oil and gas sales from continuing operations. -- Production from Spraberry, Raton and Canadian fields continues to increase. -- Drilling activity is expected to progressively increase throughout the year.
- North American rig count grew to 25 during the first quarter with contracts for 15 additional rigs by year end.
- Production growth is on track to meet or exceed targeted 2006 exit rate of 95,000 to 100,000 BOEPD.
- Two new fields discovered in the Edwards Trend are expected to provide 2006 production upside and substantial growth potential.
- Encouraging results to date indicate additional upside potential from resource plays in the Rockies, Canada, Tunisia and other U.S. onshore Gulf Coast areas.
- South Coast Gas and Oooguruk development projects are on schedule and expected to add significant production volumes in 2007 and 2008, respectively.
Net income for the first quarter of 2006 included an after-tax gain on the disposition of deepwater Gulf of Mexico (GOM) assets of $472 million, or $3.72 per diluted share, which was included in income from discontinued operations. Net income also included the following unusual items:
- incremental after-tax abandonment charge relating to a GOM shelf platform destroyed by Hurricane Rita (East Cameron 322) of $27 million, or $.21 per diluted share,
- after-tax gain related to business interruption insurance on East Cameron 322 and the Fain Gas Plant of $5 million, or $.04 per diluted share and
- valuation allowance of the income tax benefit related to the dry hole and acreage costs of the Pina 1-X well in Nigeria of $17 million, or $.13 per diluted share.
Pioneer closed the $1.3 billion divestiture of deepwater GOM assets during the first quarter and closed the $675 million sale of its Argentine operations in April. In addition to the gain on disposition of deepwater GOM assets, the Company also reported after-tax income from discontinued operations of $72 million, or $.57 per diluted share, related to the operating income of the divested properties prior to closing.
Cash flow from operating activities for the first quarter was $303 million, essentially unchanged from the same period in 2005. Having now released its quarterly earnings, Pioneer expects to initiate the repurchase of outstanding shares under the remaining $359 million repurchase program previously authorized by its board of directors.
Scott D. Sheffield, Pioneer's Chairman and CEO, stated, "Our first quarter achievements in accelerating field development, establishing new field opportunities and progressing our longer-term projects support our confidence in delivering double-digit compound average production growth over the next five years."
Production from the Spraberry field has already begun to respond to the accelerated drilling activity, rising 16% versus the prior year quarter to more than 22 thousand BOEPD. Over the next 8 months, Pioneer plans to add at least 7 additional rigs to the 350-well Spraberry drilling program, bringing the total rig count to at least 18 by year end. Through April, 76 wells had been drilled in the field.
Production from the Company's Mid-Continent fields, Hugoton and West Panhandle, exceeded expectations for the first quarter, rising slightly from the prior-year period to 131 million cubic feet per day (MMcfpd) as the mild winter resulted in less downtime.
In the Edwards Trend in South Texas, Pioneer has discovered 2 new fields which are analogous to its 300-Bcf Pawnee field and the Washburn field. Four successful wells have now been drilled in the first new field discovery in the Sinor area that tested at between 2.5 and 3.2 MMcfpd before being stimulated. These 4 wells are expected to be on production by the end of the second quarter, and the full field development plan is being prepared. The second new field discovery was drilled on the Stingray prospect approximately 90 miles northeast of the Pawnee field. Early results indicate the new field could have significant resource potential. Wells in this field are also anticipated to be online and producing by late second quarter. Production from the new field discoveries was not included in Pioneer's forecasted 2006 exit rates offering upside potential.
Three additional new-field prospects are scheduled to be drilled during the second quarter to continue the Edwards resource play expansion along the trend. Pioneer holds more than 200,000 gross acres in the trend area, has 4 rigs currently dedicated to the resource play and is adding 2 rigs to the program during 2006 and at least 1 rig during 2007. The Company plans to drill at least 35 Edwards development and exploration wells during 2006.
In the Rocky Mountains, first quarter coal bed methane (CBM) production from the Raton field was up 6% from the prior year, meeting expectations. A pipeline expansion and efforts to reduce wellhead and field pressure are expected to enhance production along with the 330-well drilling program that Pioneer has budgeted for the year. Through April, Pioneer had drilled 94 of the Raton wells planned for 2006.
In northwest Colorado, Pioneer's programs to evaluate the CBM resource potential at Lay Creek and Columbine Springs are progressing. At Lay Creek, the Company has drilled 5 pilot wells and completed workovers on 2 wells drilled by the previous operator. Results to date indicate that the coals are permeable and thicker than expected. During the second half of 2006, Pioneer plans to drill 14 development wells and install the infrastructure to initiate sales by the end of the year. Drilling on 2 additional pilot wells is expected to commence during the second quarter. At Columbine Springs, Pioneer expects to complete its 7-well extension pilot program by the end of July and have these and 23 existing wells on production by the end of the third quarter to assess production potential and water-handling requirements. Full-field development could begin in 2007. Pioneer also plans to drill 5 wells to further evaluate its resource play at Castlegate and to test its conventional Entrada gas play, both in the Uinta Basin in Utah.
In Canada, Pioneer drilled 44 Chinchaga winter-access development wells during the first quarter with 90% success and expects to have all the wells online during May. At Horseshoe Canyon, the Company drilled 18 wells during the first quarter and is increasing its development program to 200 wells for 2006 with 2 rigs contracted to begin drilling after the weather-related road bans are lifted. Pioneer also plans to drill two horizontal wells during the second quarter to test the potential of Mannville CBM in the Bashaw area. First quarter production from Canada rose 5% from the first quarter of 2005 and does not reflect the impact of winter-drilling at Chinchaga or the increase in rig activity at Horseshoe Canyon.
The Adam 4 well drilled during the first quarter in Tunisia was successful, extending Pioneer's 100% success rate in the concession where a 2-rig drilling program is underway. On the adjacent Jenein Nord block, Pioneer acquired the remaining equity interest in February, becoming the operator of the block with 100% working interest and is currently acquiring 3-D seismic on both Jenein Nord and Adam. A well is planned during the second quarter on the Borj El Khadra block which is adjacent to the Adam Concession.
Significant progress was also made on Pioneer's two longer-term development projects in South Africa and Alaska. Two development wells were drilled offshore South Africa to progress the South Coast Gas project. Fabrication of the subsea tie-back equipment also commenced with installation expected to be initiated by year end. Four additional development wells are expected to be drilled over the next 8 to 9 months to achieve first production from the project during the second half of 2007.
On the Oooguruk development project on the North Slope of Alaska, Pioneer completed the construction of the gravel drill site during April. Additional work on the project scheduled for 2006 includes contouring and armoring the drill site, fabricating equipment and modifying the drilling rig for installation during 2007. The project is on schedule to achieve first oil production in 2008.
First quarter oil sales averaged 24,896 barrels per day (BPD) and natural gas liquids sales averaged 18,595 BPD. Gas sales in the first quarter averaged 311 MMcfpd. The reported price for oil was $60.01 per barrel and included $12.91 per barrel related to deferred revenue from VPPs for which production is not recorded. The price for natural gas liquids was $34.20 per barrel. The reported price for gas was $6.72 per thousand cubic feet (Mcf) and included $.68 per Mcf related to deferred revenue from VPPs for which production is not recorded.
First quarter production costs averaged $11.04 per barrel of oil equivalent (BOE) reflecting the impact of the divestitures of lower-cost, lower-margin fields in Argentina and lower-cost, short-lived fields in the deepwater GOM, incremental workover costs to maximize production, an increase in pipeline transportation costs and an increase in the VPP volumes for which costs are included but production is not recorded. Exploration and abandonment costs were $125 million for the quarter and included $42 million of incremental before-tax cost to abandon the East Cameron 322 field as discussed previously, $33 million of dry hole and acreage costs associated with the unsuccessful Pina 1-X well in Nigeria, $31 million of geologic and geophysical expenses including seismic and personnel costs and $19 million of other drilling and acreage costs.
The following statements are estimates based on current expectations. These forward-looking statements are subject to a number of risks and uncertainties that 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.
Second quarter 2006 production is expected to average 93,000 to 98,000 BOEPD. Second quarter production costs (including production and ad valorem taxes and transportation costs) are expected to average $11.00 to $12.00 per BOE based on current NYMEX strip prices for oil and gas. Depreciation, depletion and amortization expense is expected to average $9.25 to $10.25 per BOE.
Total exploration and abandonment expense is expected to be $25 million to $55 million and includes $4 million to $30 million of carryover costs associated with high-impact wells drilled in Alaska during the first quarter and lower-risk resource plays in the Edwards Trend in South Texas and in Canada and Tunisia. Exploration expense also includes $21 million to $25 million for seismic investments and personnel, primarily related to the onshore resource plays Pioneer is currently pursuing. General and administrative expense is expected to be $31 million to $34 million. Interest expense is expected to be $24 million to $27 million, offset by interest income of $3 million to $4 million. Accretion of discount on asset retirement obligations is expected to be $1 million to $2 million.
Pioneer will record a nominal gain from the sale of its Argentine operations during the second quarter, and Argentine operating income will be reflected in discontinued operations. Incremental insurance recoveries related to Pioneer's coverage for business interruption and damage related to the 2005 hurricanes are expected to be reflected in future quarters.
The Company's second quarter effective income tax rate is expected
to range from 35% to 45% based on current capital spending plans. Cash
income taxes are expected to range from $5 million to $15 million,
principally related to Tunisian income taxes and nominal alternative
minimum tax in the U.S.
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