Pioneer Natural Resources Reports Net Income of $130 Million
Pioneer Natural Resources Company announced financial and operating results for the quarter ended March 31, 2008.
Scott Sheffield, Chairman and CEO, stated, "Delivering consistent, repeatable reserve and production growth was a key goal in our decision to refocus the Company's efforts on our onshore assets, particularly those in North America. Our first quarter results further demonstrate that this goal is being achieved. With the new opportunities we've announced in our two largest core areas (Spraberry and Raton), our active onshore drilling program and plans to expand drilling in 2009, we are highly confident that the Company will continue to deliver consistent growth and achieve our recently increased target for 14+% compound average annual growth (CAGR) in production per share and 20+% CAGR in after-tax cash flow through 2011.
"Pioneer has reached an important inflection point. From 2008 to 2009, based on current strip commodity prices and expected production growth, our after-tax cash flow is expected to grow by approximately 50%."
Pioneer's first quarter net income was $130 million, or $1.09 per diluted share, and included income of $11 million ($7 million or $.06 per diluted share after tax) associated with the refund of Alaskan Petroleum Production Tax credits which are earned for qualified capital expenditures and income of $2 million ($.02 per diluted share) from discontinued operations.
First quarter oil and gas sales exceeded expectations. Oil sales averaged 28,145 barrels per day (BPD), natural gas liquids sales averaged 19,408 BPD and gas sales averaged 376 million cubic feet per day (MMCFPD).
The reported first quarter average price for oil was $77.41 per barrel and included $10.17 per barrel related to deferred revenue from volumetric production payments (VPPs) for which production was not recorded. The price for natural gas liquids was $53.89 per barrel. The reported price for gas was $7.74 per thousand cubic feet (MCF), including $.40 per MCF related to deferred revenue from VPPs for which production was not recorded.
First quarter production costs averaged $13.22 per BOE. Production costs were primarily impacted by (i) higher production taxes, electricity and fuel costs related to the increase in commodity prices, (ii) increased compressor maintenance in Raton, (iii) higher lease operating expenses associated with initiating production operations in the Cherouq Concession in Tunisia (formerly a part of the Jenein Nord block) and (iv) fixed costs associated with operating the Sable Floating Production Storage and Offloading vessel (FPSO) coupled with declining field production.
Exploration and abandonment costs were $39 million for the quarter and included $5 million of acreage and unsuccessful drilling costs and $34 million of geologic and geophysical expenses, including seismic costs related to ongoing activities in the Edwards Trend and Tunisia and personnel costs.
Cash flow from operating activities for the first quarter was $178 million.
Pioneer recently updated its estimate of the Company's net asset value (NAV) considering current proved reserves and net resource potential estimates. Utilizing an oil price of $85 per barrel, a gas price of $8.50 per MCF and a 10% present value discount rate, Pioneer estimates that its NAV is approximately $109 per share. At $100 per barrel and $10 per MCF, estimated NAV is approximately $153 per share. Approximately 50% of the estimated NAV is attributable to proved reserves.
In April, Pioneer completed the initial public offering of common units in Pioneer Southwest Energy Partners L.P. (PSE) and received net proceeds of $163 million in early May, including proceeds related to the underwriters' exercise of their over-allotment option in full. PSE has interests in producing wells that had 34 million BOE of estimated proved reserves as of December 31, 2007, and average production of 5,367 BOEPD during 2007. Pioneer retained an ownership interest in PSE of approximately 68%.
Second quarter 2008 production is forecasted to average 110,000 BOEPD to 115,000 BOEPD. Production growth is expected to continue during the second quarter, driven primarily by increasing production from Pioneer's core onshore areas (Spraberry, Raton, Edwards and Tunisia). The forecasted second quarter production range includes approximately 1,100 BOEPD of production that is attributable to the public ownership in PSE. The expense estimates below also include portions attributable to the public ownership in PSE.
Second quarter production costs (including production and ad valorem taxes and transportation costs) are expected to average $12.75 to $13.75 per BOE based on current NYMEX strip prices for oil and gas. Depreciation, depletion and amortization expense is expected to average $10.75 to $11.75 per BOE.
Total exploration and abandonment expense during the second quarter is expected to be $40 million to $70 million, including up to $35 million associated with drilling in lower-risk resource plays in the Edwards Trend and Tunisia and $35 million of seismic (principally in the Edwards Trend and Tunisia) and personnel costs.
General and administrative expense is expected to be $34 million to $38 million. Interest expense is expected to be $36 million to $40 million. Accretion of discount on asset retirement obligations is expected to be $2 million to $4 million.
The Company's second quarter effective income tax rate is expected to range from 40% to 50% based on current capital spending plans. Cash taxes are expected to be $15 million to $25 million and are primarily attributable to Tunisia.
Second quarter 2008 amortization of deferred losses on terminated oil and gas hedges is expected to be $30 million. The Company's financial results, oil and gas hedges and future VPP amortization are outlined on the attached schedules.
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