Pioneer Reports First Quarter 2008 Results
Wednesday, May 7, 2008
Pioneer Natural Resources Company today announced financial and operating results for the quarter ended March 31, 2008.
- Reported first quarter net income of $130 million, or $1.09 per diluted share
- Increased average daily oil and gas sales to 110,298 barrels oil equivalent per day (BOEPD); 24% above comparable sales for the first quarter of 2007
- Posted 31% combined production growth from Spraberry, Raton and Edwards fields from the prior year quarter
- Announced initiatives to capture additional resource potential of one billion barrels oil equivalent (BOE) in the Spraberry field
- Announced a new discovery in the Pierre Shale gas play in the Raton Basin in southeastern Colorado with net resource potential of more than two trillion cubic feet
- Drilled three successful Silurian wells in Tunisia; two wells included new discoveries in the Ordovician and TAGI formations
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%.
In the Spraberry oil field, Pioneer is actively undertaking initiatives to capture additional resource potential and currently estimates that the field holds approximately 1 billion BOE of resource potential above current proved reserves. Spraberry production increased 21% in the first quarter of 2008 compared to first quarter 2007. The Company is running 16 rigs in the field, has drilled 94 wells in its 350-well program and expects Spraberry production to grow approximately 15% during 2008. Increased drilling activity beginning in 2009 and new resource recovery initiatives support expectations for 15% compound average annual growth in production through 2011.
Pioneer recently announced a new discovery in the Pierre Shale gas play in the Raton Basin in southeastern Colorado with more than two trillion cubic feet of net resource potential. The play is being developed under the existing Raton coal bed methane (CBM) field. A total of 10 vertical wells have been drilled; five wells drilled into the "fairway" proved commerciality of the Kp1 (lowest) interval and five other wells tested the areal extent of the play. Pioneer has initiated testing in the Kp2 and Kp3 intervals in several wells. This summer, the Company plans to begin assessing the potential upside from horizontal drilling. Pioneer expects to complete 175 wells (160 CBM wells and approximately 15 Pierre Shale wells) during 2008 and increase production by approximately 15% from 2007 levels.
The Company's active drilling program in the Edwards Trend in South Texas continues with 11 wells drilled in the first quarter. First quarter 2008 production was up 65% compared to the same quarter in 2007 and is expected to grow more than 25% in 2008 with the drilling of at least 35 development and appraisal wells. During the first quarter, Pioneer announced further success in a new large field that was discovered in the Edwards Trend during 2007. Several wells in the field have been tested with initial production rates ranging from 10 MMCFPD to 18 MMCFPD. While these rates are not indicative of expected stabilized production rates, they materially exceeded historical average initial test rates from wells drilled in the trend. Through the remainder of 2008, the Company is planning to add facility capacity of 25 MMCFPD to 50 MMCFPD to accommodate additional growth.
Pioneer has commenced a 20-well drilling program in the Barnett Shale, which includes participation with another operator in the drilling of six wells. Beginning in 2009, the Company plans to expand its Barnett drilling program with gas equivalent production expected to grow from a current level of approximately 15 MMCFPD to approximately 100 MMCFPD by 2011.
In Tunisia, Pioneer drilled three successful Silurian wells, one in the Cherouq Concession and two in the Adam Concession. Two of the wells also included new discoveries in the Ordovician and TAGI formations, with the new zones testing at combined rates of approximately 3,500 BOEPD. Construction of Cherouq production facilities is on schedule and the 3-D seismic program in Anaguid and Cherouq is approximately 70% complete. Pioneer plans to drill 15 to 17 wells in Tunisia during 2008 and increase daily production by 80% to 90%.
Offshore South Africa, production continues from Pioneer's interests in the Sable oil field and the South Coast Gas (SCG) project. Facilities modifications are planned for late 2008/early 2009 to allow for simultaneous production of oil and gas from Sable which will significantly expand the gas produced through the SCG project and also result in lower operating costs once the Sable FPSO is released.
On the North Slope of Alaska, Pioneer has drilled the first producing well and a disposal well at Oooguruk. First production is expected during the second quarter of 2008 with first sales anticipated following the completion of scheduled mid-year maintenance at third-party onshore production facilities. The Company expects to have five to six producing wells and several injection wells drilled by year-end 2008, with net sales expected to reach 3 MBOPD to 4 MBOPD.
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