Pioneer Lowers Capex Budget by $200M
The board of Pioneer Natural Resources Co. has approved a 2007 capital budget of $1.1 billion (which excludes acquisitions, asset retirement obligations, capitalized interest and geological and geophysical G&A), a decrease of approximately $200 million from comparable 2006 capital spending. Under this 2007 capital spending program, Pioneer expects to deliver oil and gas production growth in excess of 10% from 2006 production of 35.9 million barrels oil equivalent.
Approximately 80% of the 2007 capital budget is focused on Pioneer's North American onshore development activities and resource plays, with the remainder primarily directed toward Tunisia and South Africa. The capital budget is allocated as follows:
--75% for development activities, including 50% for low-risk development drilling in onshore North American core areas and 25% to develop the South Coast Gas (South Africa) and Oooguruk (Alaska) projects --20% to test and develop attractive, lower-risk resource plays onshore North America and Tunisia --5% for high-impact exploration in the U.S. and West Africa
"In 2006, Pioneer successfully delivered on its production growth, reserve replacement, finding and development cost, asset divestment and share repurchase goals," stated Scott Sheffield, Pioneer's Chairman and CEO. "Our 2007 capital program includes many of the same attributes, namely low-risk development drilling, investment in current and future onshore resource plays and completion of our two large development projects. We have proven we have the right people with the right experience and the necessary equipment to execute this plan. This gives us confidence that 2007 will be another successful year for Pioneer."
Development Drilling and Projects
By accelerating development drilling in core areas, Pioneer grew 2006 North American production by 12% from equivalent volumetric production payment adjusted 2005 levels. Pioneer will continue the accelerated pace of drilling in 2007 and plans to drill approximately 300 wells in the Spraberry field (West Texas) and 250 to 300 wells in the Raton field (Southeastern Colorado). These proven growth assets, which both possess a large inventory of drilling locations, grew a combined 15% in 2006 with similar performance expected for 2007. In Canada, Pioneer plans a 50-well program, primarily focused on winter-access areas in northern Alberta and British Columbia and plans to complete the tie-in of approximately 40 wells in the Horseshoe Canyon area that were drilled in 2006. During the second half of the year, the Company will evaluate its drilling campaign in the area taking into consideration the outlook for North American natural gas prices.
Pioneer commenced construction of two large development projects in 2006 - South Coast Gas off the coast of South Africa and the Oooguruk oil field on the North Slope of Alaska. Both projects are on schedule and on budget.
Pioneer expects to invest approximately $225 million (Pioneer's 45% interest) in the South Coast Gas project, with approximately 50% having been spent in 2006 and the remainder expected to be spent in 2007. First production from this project is expected in the second half of 2007 after subsea infrastructure and well tie-ins are completed. Sales proceeds from the project are indexed to oil prices, and assuming a NYMEX equivalent oil price of $60 per barrel, the project is expected to generate a before-tax internal rate of return of approximately 40%.
At Oooguruk, where Pioneer has a 70% interest, development drilling is expected to begin in late 2007 after facilities and equipment installation is completed. First production is targeted for 2008. The Company expects to invest approximately $350 million in Oooguruk, with approximately 30% invested during 2006, approximately 45% in 2007 and the remainder in 2008 / 2009. The before-tax internal rate of return for Oooguruk at an assumed NYMEX equivalent oil price of $60 per barrel is estimated at 40%.
To expand existing resource plays and test new concepts, Pioneer plans to spend approximately $225 million to drill lower-risk exploration, appraisal and development wells and to install related infrastructure during 2007.
The 2007 capital budget calls for approximately 35 wells to be drilled in the Edwards Trend, including infill drilling in the Pawnee field and more aggressive fracture stimulation of several existing wells. In addition, the Company plans to shoot and interpret approximately 850 square miles of new 3-D seismic, with three surveys already underway. While the new seismic work is being completed, Pioneer will direct most of its investments in the Edwards Trend to lower-risk, lower-cost development drilling in the Pawnee field and on existing discoveries where 3-D data is currently available. Plans are also in progress to expand the gas gathering infrastructure in the area to accommodate expected production growth and to maximize efficiency at Pioneer's Pawnee gas plant. With this program, the Company expects to increase existing Edwards Trend production of approximately 40 million cubic feet equivalent per day by 20% to 25% in 2007.
Pioneer also expects to continue the testing and development of other new resource plays in North America, including the Rockies, the Mississippi Salt Basin and several shale gas opportunities near existing assets.
The 2007 budget includes plans to drill two additional wells in the Bolton field redevelopment project in Hinds County, Mississippi. Facility construction is underway, and first production is anticipated in mid-2007.
CBM pilot programs in three Rocky Mountain basins progressed during 2006 - Lay Creek (Sand Wash Basin), Castlegate (Uinta Basin) and Columbine Springs (Piceance Basin). Minimal capital will be spent in these areas during 2007 while the performance of the pilots is being evaluated to determine commerciality.
In January, Pioneer announced four new discoveries and a new successful development well in Tunisia, continuing its drilling success in the Adam Concession and extending success into two adjacent blocks, including the Company-operated Jenein Nord block. For the remainder of 2007, Pioneer's budget includes one additional exploration well on Jenein Nord and two additional wells on Adam. After the performance of the discovery wells has been monitored for several months, additional exploration and appraisal wells may also be drilled.
High-impact exploration capital represents approximately 5% of the 2007 capital budget, reflecting Pioneer's continuing commitment to significantly limit its spending on higher-risk exploration activities. The 2007 budget includes two wells in Alaska and two wells in Nigeria. The two Alaska wells are in the National Petroleum Reserve Alaska (NPR-A) area on the North Slope and will spud during the first quarter. The first well in Nigeria (OPL 256) is scheduled in the second quarter, while drilling on the second well (OPL 320) is expected to commence in the third quarter.
Under current strip prices, Pioneer expects its 2007 budget to be approximately $150 million to $200 million above its cash flow from operations. With Pioneer's strong balance sheet, this shortfall will be funded by borrowings from its $1.5 billion credit facility. Capital spending will be more heavily weighted toward the first half of 2007, reflecting completion of the South Coast Gas project and winter-access drilling and construction activity in Alaska (Oooguruk and NPR-A) and Canada.
Pioneer is a large independent oil and gas exploration and production company, headquartered in Dallas, Texas, with operations in the United States, Canada, South Africa and Tunisia.
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