Pioneer Reports Strong Production Growth, Earnings for Q2
Pioneer Natural Resources (NYSE:PXD) reported financial and operating results for the quarter ended June 30, 2007. Net income for the second quarter was $36 million, or $.30 per diluted share. Second quarter results included several items unrelated to ongoing operations:
--A charge of $47 million related to incremental estimated costs for reclamation of the Company's East Cameron 322 facility that was destroyed by Hurricane Rita. The Company expects insurance to cover a substantial portion of the incremental costs. --Charges totaling $35 million for drilling and asset impairments associated with exiting Nigeria, which were offset by a related tax benefit of $40 million. --A charge for a U.S. impairment of $6 million.
In the aggregate, the above items represent a net after-tax charge of $29 million, or $.23 per diluted share.
Pioneer also recorded the receipt of its first Alaskan Petroleum Production Tax (PPT) refund. The Company earns PPT capital expenditure credits for qualified capital expenditures that can be used to reduce future PPT liabilities, sold to third parties or refunded by the State of Alaska. During the second quarter of 2007, Pioneer monetized $25.0 million of PPT credits through a refund from the State of Alaska ($16 MM or $.13 after-tax), that is included in Interest and Other Income. The Company expects to monetize and otherwise benefit from additional PPT credits in future quarters.
Oil and gas sales reached the top end of Pioneer's forecasted range due to continued growth in the Company's core areas and averaged 105,656 barrels oil equivalent per day (BOEPD), up 7% as compared to the prior year quarter.
2007 Drilling Program
Pioneer's 2007 capital budget is being expanded by $150 million to $1.45 billion, excluding acquisitions, asset retirement obligations, capitalized interest and G&G G&A. Approximately $100 million of the capital increase is related to expansions of recent drilling success in the Raton Basin, Mississippi and Tunisia and drilling associated with recent acquisitions in the Fort Worth Barnett Shale play and the Raton Basin. Increased facilities costs related to 2007 development activities on the Oooguruk project on the North Slope of Alaska represent $50 million of the capital increase.
The Raton Basin program is currently ahead of schedule as a result of improved permitting and drilling and completion efficiencies. The Company is currently running three rigs in the area and expects that its total wells completed in Raton during 2007 will approach the top end of its 250 well to 300 well range.
In the Spraberry field, Pioneer has drilled approximately 180 wells of its 360 well program for 2007. In the Edwards Trend in South Texas, Pioneer's drilling program is expected to achieve its forecasted production growth, despite heavy rains that have persisted in the area. However, the severe weather has hindered the pace of the Company's 3-D seismic program in the trend.
In Mississippi, Pioneer's two Cotton Valley exploration wells in the Bolton field were successful, each testing at rates greater than 10 million cubic feet per day (MMCFPD). As a result, the Company has invested additional capital to install a treating facility and pipeline and has initiated production which is limited to facility capacity of 10 MMCFPD. Pioneer holds an 80% working interest in approximately 11,000 gross acres in the area and has identified more than 10 additional prospects on other acreage in Mississippi. The Company also expects to shoot additional 3-D seismic in the Bolton area to better define the resource potential and identify 2008 drilling plans.
Pioneer also announced that it has entered the Fort Worth Barnett Shale play and expects to invest approximately $60 million during 2007 to acquire acreage and commence drilling and seismic activities. Approximately 13,000 gross acres have been acquired offering the potential for more than 175 drilling locations. During the remainder of 2007, Pioneer expects to drill 9 to 10 wells and acquire 3-D seismic data and will continue to pursue acquisitions to expand its acreage position in the play.
Having been designated a new core area for Pioneer earlier this year, Tunisia continues to generate positive results. On its operated Jenein Nord block, Pioneer has announced five discoveries and is constructing new facilities with expectations for first production during the fourth quarter of 2007. The Company expects that at least six additional wells will be drilled and additional 3-D seismic data will be acquired in Tunisia during the second half of the year.
The Oooguruk project is on schedule for first production during the first half of 2008. Pioneer has expanded its 2007 budget for the project to account for higher than expected facility costs. The Company has installed the production modules, the support pipeline and the drilling rig in order to commence Oooguruk drilling during late 2007. In the Cosmopolitan project, Pioneer has increased its working interest to 100% and expects to spud an appraisal well in September to test a zone discovered by a previous operator.
The South Coast Gas project offshore South Africa is expected to have first gas and condensate production from five new gas wells by the end of the third quarter with net fourth quarter gas equivalent production expected to average 20 MMCFPD to 25 MMCFPD.
Second quarter oil sales averaged 25,888 barrels per day (BPD) and natural gas liquids sales averaged 18,140 BPD. Gas sales in the second quarter averaged 370 MMCFPD. The reported price for oil was $60.38 per barrel and included $11.65 per barrel related to deferred revenue from volumetric production payments (VPPs) for which production was not recorded. The price for natural gas liquids was $39.52 per barrel. The reported price for gas was $7.45 per thousand cubic feet (MCF), including $.53 per MCF related to deferred revenue from VPPs for which production was not recorded.
Second quarter production costs averaged $12.53 per barrel oil equivalent (BOE), and were impacted primarily by facilities and compression work in Raton and an increase in workover activity, much of which having been postponed due to first quarter weather disruptions.
Exploration and abandonment costs were $70 million for the quarter and included $44 million of acreage and unsuccessful drilling costs, including $23 million for Nigeria Block 256, and $26 million of geologic and geophysical expenses, including seismic and personnel costs. As discussed above and reported as net hurricane activity expense, the incremental estimated cost associated with the abandonment of the East Cameron 322 facility resulted in a decrease in after-tax earnings of $30 million.
Pioneer invested $476 million during the second quarter 2007, bringing total investments for the first half of 2007 to $984 million, including acquisitions. Capital investments for 2007 were heavily front-end loaded with $390 million of capital invested during the first half of the year in large development projects (South Coast Gas project offshore South Africa and Oooguruk field development on the North Slope of Alaska), high impact exploration and winter-access drilling in Canada.
Adjusted to exclude discontinued operations, total sales for the second quarter 2006 averaged 98,893 BOEPD and included oil sales of 24,571 BPD, natural gas liquids sales of 19,143 BPD and gas sales of 331 MMCFPD. Reported prices for second quarter 2006 were $69.71 per barrel for oil, including $13.00 per barrel related to deferred revenue from VPPs for which production was not recorded, $36.32 per barrel for natural gas liquids and $6.25 per MCF for gas, including $.62 per MCF related to deferred revenue from VPPs for which production was not recorded.
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