Pioneer Reports Third Quarter 2006 Results
Pioneer Natural Resources Company (NYSE:PXD) announced financial and operating results for the quarter ended September 30, 2006.
--Pioneer reported net income of $81 million, or $.64 per diluted share.
--Third quarter oil and gas sales from continuing operations averaged 98,525 barrels oil equivalent per day (BOEPD).
--North American production for the first nine months of 2006 rose 14% from equivalent volumetric production payment (VPP) adjusted 2005 nine-month levels, reflecting the continuing success of Pioneer's accelerated development drilling program.
--Production growth is on track to reach approximately 36 million barrels oil equivalent (BOE), near the high end of the 2006 production guidance range of 33 million to 37 million BOE.
--The Company purchased 3.1 million shares at $39.54 per share during the quarter, completing $294 million of the remaining $359 million share repurchase program authorized by the Board of Directors.
--Pioneer exited the quarter with net debt-to-book capitalization of 27%.
Income from continuing operations for the third quarter of 2006 was $81 million, or $.64 per diluted share, as compared to $62 million, or $.44 per diluted share, for the third quarter of 2005.
Cash flow from operating activities for the third quarter of 2006 was $183 million.
Pioneer also increased its 2007 natural gas hedge position by 91 million cubic feet per day (Mmcfpd). The 2007 hedges were added at NYMEX-equivalent prices greater than $9.00 per thousand cubic feet (Mcf) in order to protect a portion of the economics associated with the Company's planned 2007 gas drilling program.
Scott D. Sheffield, Pioneer's Chairman and CEO, stated, "Our strategy to deliver strong, consistent production growth in North America is on track to provide the results we expected for 2006 and lay the foundation for another strong year in 2007. Our low-risk onshore development programs are delivering high returns and consistent growth, and with the contributions from our resource plays, especially the Edwards Trend play and the initiation of production from the South Coast Gas project during the second half of 2007, I am confident that we will reach our 10+% production per share growth target for 2007."
Pioneer currently has 39 rigs running in North America and one rig running in Tunisia. By the end of 2006, an additional rig will be added in North America bringing the total to 40 rigs as compared to 23 rigs at the end of 2005. Average daily oil and gas production from North America increased 3% during the third quarter from the average for the first half of 2006, and is on target to meet or exceed the high end of the forecasted 2006 exit rate of 90,000 to 95,000 BOEPD.
In the Permian Basin, Pioneer is running 20 rigs and through October has drilled approximately 240 of the 335 wells expected during 2006. The Company has increased nine-month oil and gas sales 23% above 2005 nine-month levels, after adjusting for the Company's VPPs for comparison purposes. Production growth from the Spraberry field is on target to exceed the Company's exit rate forecast and is being driven by the success of Pioneer's deeper drilling campaign, which increases reserves and production by including the deeper Wolfcamp formation, and new opportunities from bolt-on acquisitions. Year-to-date, more than 90,000 gross acres have been leased in the Permian Basin.
Mid-Continent production from the Hugoton and West Panhandle gas fields is being maintained at consistent levels and is exceeding expectations.
In the Rocky Mountains, nine-month coal bed methane (CBM) production in the Raton field was up 9% from the same period in 2005. During the third quarter, Pioneer added a third rig and through October has drilled approximately 250 of the 330 Raton wells planned for 2006. Raton production for the third quarter was up 5% compared to the first half of 2006, and the Company now expects 2006 production from the Raton field to exceed the 5% to 7% annual growth target announced earlier this year.
In South Texas, Pioneer is running five rigs in the Edwards Trend and expects to add another rig in early 2007. The Company has 245,000 gross acres under lease and continues to develop its Pawnee and Word fields while expanding the potential of the trend by drilling exploration and appraisal wells on new field prospects. Pioneer drilled a new discovery during the third quarter and has drilled six discoveries to date in 2006. Two new processing facilities were also added during the third quarter. The Company has tied in five new discovery wells which are currently producing approximately 6 Mmcfpd, and has twelve Edwards expansion wells currently drilling or waiting to be tied in to pipelines, including two wells that are expected to begin producing in early November which tested at approximately 3.5 Mmcfpd each.
During the fourth quarter, Pioneer plans to test one new prospect and drill five appraisal wells and four development wells. In addition, approximately 850 square miles of 3-D seismic data will be acquired on new discoveries in South Texas through 2007 to support new field development drilling which is expected to be initiated mid-2007.
In Canada, nine-month production is up 16% compared to the same period of 2005, and third quarter production rose 15% compared to the first half of 2006. The Company has drilled 85 Horseshoe Canyon CBM wells and has three rigs running to complete the 175 wells planned for 2006. Pioneer expects to have 120 wells on production by year end and to tie in the remaining 55 wells in early 2007 after adding compression facilities during the fourth quarter.
On the North Slope of Alaska, Pioneer has completed the construction, contouring and armoring of the gravel drill site for the Oooguruk development project. Current activities include procuring equipment and services, fabricating equipment and modifying the drilling rig for installation during 2007. The project is on schedule to achieve first oil production in 2008.
Offshore South Africa, production from the Sable oil field continues to exceed expectations and development drilling continues on the South Coast Gas Project, a seven-well subsea tie-back to the existing F-A platform. Subsea infrastructure is expected to be in place for project startup and first production during the second half of 2007.
In Tunisia, the Hawa appraisal well became the ninth successful well drilled on the Adam Concession and is expected to be producing by the end of the year. During the fourth quarter, Pioneer expects to drill another well on the Adam Concession, two wells in the Pioneer-operated Jenein Nord block and a well in the Borj El Khadra block.
Third quarter oil sales averaged 23,699 barrels per day (BPD) and natural gas liquids sales averaged 19,352 BPD. Gas sales in the third quarter averaged 333 Mmcfpd. The reported price for oil was $70.89 per barrel and included $13.38 per barrel related to deferred revenue from VPPs for which production was not recorded. The price for natural gas liquids was $39.08 per barrel. The reported price for gas was $6.33 per Mcf and included $.60 per Mcf related to deferred revenue from VPPs for which production was not recorded.
Third quarter production costs averaged $11.36 per BOE. Exploration and abandonment costs were $44 million for the quarter and included $13 million of unsuccessful drilling costs, $27 million of geologic and geophysical expenses including seismic and personnel costs and $4 million of acreage and other 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.
Fourth quarter 2006 production is expected to average 98,000 to 103,000 BOEPD. Fourth 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 $10.00 to $11.00 per BOE.
Total exploration and abandonment expense during the fourth quarter is expected to be $45 million to $110 million and includes approximately $15 million of costs associated with an unsuccessful test of the Flying Cloud prospect adjacent to Pioneer's Clipper discovery (deepwater Gulf of Mexico) and could include up to $15 million associated with high-impact onshore drilling in Mississippi. It could also include $30 million associated with lower-risk resource plays in the Edwards Trend in South Texas, Uinta/Piceance basins in the Rockies, Canada and Tunisia and up to $15 million for acreage and other expenses. In addition, exploration expense is expected to include $30 million to $35 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 $29 million to $33 million. Interest expense is expected to be $24 million to $28 million, offset by interest income of $1 million to $3 million. Accretion of discount on asset retirement obligations is expected to be $1 million to $2 million.
The Company's fourth 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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