Pioneer Sees 21% Production Increase in 3Q 2007
Pioneer Natural Resources (NYSE:PXD) reported third quarter net income of $102 million, or $.84 per diluted share and an average daily oil and gas sales of 109,423 boe/d, or 100,799 boe/d excluding discontinued operations in Canada. A 21% increase in production from core onshore assets in Spraberry, Raton, Edwards and Tunisia compared to the same quarter of 2006.
Pioneer also announced that it expects 2007 all-in finding and development costs to be approximately $14 to $17 per barrel oil equivalent (BOE). Reserve replacement for 2007 is expected to be greater than 300%. The expected 2007 reserve additions are primarily attributable to continuing success in Tunisia, Spraberry, Raton and Edwards, and attractive acquisitions in Raton, Spraberry and the Barnett Shale.
In the Spraberry oil field, Pioneer has drilled approximately 300 wells year to date, and production for the third quarter of 2007 increased 14% compared to the same quarter of 2006. The Company continues to drill a majority of the wells to the deeper Wolfcamp zone resulting in incremental reserves and production of more than 20% being added to the typical Spraberry well. Today, Pioneer also separately announced a Spraberry acquisition.
In the Edwards Trend in South Texas, gas production increased 63% compared to the same quarter of 2006. Two new fields were discovered during the third quarter increasing Pioneer's new field discoveries in the Edwards expansion area to eight. The Company's 3-D seismic program is progressing well, and treating and pipeline infrastructure in the field is being expanded to handle Pioneer's increasing production.
The Raton Basin program continues to be ahead of schedule as a result of improved permitting and drilling and completion efficiencies. The Company expects that 300 new coal bed methane wells will be completed and placed online in Raton during 2007. Raton production for the third quarter of 2007 is up 11% compared to the third quarter of 2006. Pioneer continues to further enhance production by adding wellhead compression throughout the field and optimizing field pressures.
Today, Pioneer also separately announced that it has agreed to purchase additional properties in the Barnett Shale and provided an update on its initial activity.
On its operated Jenein Nord block in Tunisia, Pioneer announced two new discoveries during the third quarter, for a total of seven successful wells on the block since late 2006. The Company is constructing new facilities and expects to initiate oil production from Jenein Nord during the fourth quarter of 2007, with first sales expected in the first quarter of 2008. The three latest discoveries on the block, Farrah, Angham and Methaq, tested at a combined production rate of greater than 10,000 barrels of oil per day (BOPD). The Nadir well, a recent discovery in the Adam Concession, tested in excess of 4,000 BOPD. The acquisition of additional 3-D seismic is underway in Jenein Nord and will soon commence on the Anaguid block. Three additional wells are expected to be drilled in Tunisia before the end of the year, and 15 to 19 wells are planned for 2008.
Gas and condensate production from four wells in the South Coast Gas project offshore South Africa has been initiated. Net gas equivalent production is expected to average 15 to 20 million cubic feet per day (MMCFPD) during the fourth quarter, and one additional gas well is expected to be online by the end of the year.
In Alaska, the Company has installed the Oooguruk production modules, export pipeline and the drilling rig in order to commence drilling in December. The project is on schedule for first oil production during the first half of 2008 with first sales expected mid-year. On the Cosmopolitan project, offshore Kenai Peninsula, Pioneer is drilling a horizontal appraisal well from an onshore pad. It is anticipated that the appraisal well will be completed by the end of the year, followed by an extended production test.
Pioneer's third quarter net income was $102 million, or $.84 per diluted share, and included income from continuing operations of $93 million, or $.77 per diluted share. Cash flow from operating activities for the third quarter was $191 million.
Excluding discontinued operations attributable to the pending sale of the Company's Canadian assets, third quarter oil sales averaged 24,994 barrels per day (BPD), natural gas liquids sales averaged 19,997 BPD and gas sales averaged 335 MMCFPD.
The reported price for oil was $70.27 per barrel and included $11.98 per barrel related to deferred revenue from volumetric production payments (VPPs) for which production was not recorded. The price for natural gas liquids was $42.48 per barrel. The reported price for gas was $7.11 per thousand cubic feet (MCF), including $.58 per MCF related to deferred revenue from VPPs for which production was not recorded.
During the third quarter of 2007, Pioneer recorded in Other Income $28 million ($18 million or $.15 per diluted share after tax) associated with the sale of Alaskan Petroleum Production Tax (PPT) credits. The Company earns PPT 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.
Third quarter production costs averaged $12.24 per barrel oil equivalent (BOE). DD&A expense for the quarter was $114 million, or $12.28 per BOE, and included a charge of $17 million ($11 million or $.09 per diluted share after tax), due to downward price-related proved reserve revisions for properties in the Uinta/Piceance basin as a result of extremely low Rockies spot gas prices of $.60 per MCF as of September 30, 2007. Production from Pioneer's Raton Basin properties is sold through Mid-Continent markets, and therefore Raton proved reserves were not impacted by low quarter-end prices in the Rockies.
Exploration and abandonment costs were $34 million for the quarter and included $10 million of acreage and unsuccessful drilling costs and $24 million of geologic and geophysical expenses, including seismic and personnel costs.
Considering that the South Coast Gas project is completed and that most of the investment in Oooguruk facilities will be expended by the end of 2007, Pioneer's 2008 capital budget is expected to be approximately $1 billion, in line with expected cash flow. Capital spending for 2008 will be focused primarily on onshore development activities in Spraberry, Raton, Edwards and Tunisia and offshore development drilling at Oooguruk.
Scott Sheffield, Chairman and CEO, stated, "Third quarter production from continuing operations was up 12% from the prior year quarter. This strong organic production growth coupled with the opportunity to enhance per-share performance with share repurchases give us confidence that we can achieve our 12+% compounded annual production growth target for 2007 through 2010."
Fourth quarter 2007 production from continuing operations is forecasted to average 101,000 to 106,000 BOEPD. Consistent growth is expected to continue, primarily driven by increasing production from Spraberry, Raton, Edwards, Tunisia and the South Coast Gas project in South Africa.
Fourth quarter production costs (including production and ad valorem taxes and transportation costs) are expected to average $11.75 to $12.75 per BOE based on current NYMEX strip prices for oil and gas. Depreciation, depletion and amortization expense is expected to average $10.50 to $11.50 per BOE.
Total exploration and abandonment expense during the fourth quarter is expected to be $40 million to $70 million and could include up to $45 million associated with lower-risk resource plays in the Edwards Trend in South Texas, the Rockies and Tunisia. In addition, exploration expense is expected to include up to $25 million for seismic investments and personnel, primarily related to the onshore resource plays in South Texas and Tunisia that Pioneer is currently progressing.
General and administrative expense is expected to be $30 million to $34 million. Interest expense is expected to be $38 million to $42 million, reflecting the ceasing of capitalization of interest on the South Gas Project in South Africa since it has started producing. Accretion of discount on asset retirement obligations is expected to be $2 million to $3 million.
The Company's fourth quarter effective income tax rate is expected to range from 40% to 45% based on current capital spending plans.
Fourth quarter 2007 amortization of deferred losses on terminated oil and gas hedges is expected to be $38 million. The Company's financial results, oil and gas hedges and future VPP amortization are outlined on the attached schedules.
All necessary approvals for the divestiture of Pioneer's Canadian subsidiary have been obtained, except for the purchaser's approval under the Investment Canada Act. During the fourth quarter, Pioneer expects to close the sale of its Canadian subsidiary and the initial public offering of units in Pioneer Southwest Energy Partners L.P. Proceeds from these transactions will be used to fund the previously announced acquisitions in the Rockies, Barnett Shale and Spraberry and to reduce outstanding indebtedness.
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