Pioneer Natural Resources Company has announced financial and operating results for the quarter ended June 30, 2008.
Highlights
• Reported second quarter net income of $159 million, or $1.32 per diluted share
• Increased average daily oil and gas sales to 113,987 barrels oil equivalent per day (BOEPD); 19% above sales for the second quarter of 2007 (excluding 2007 sales from divested Canada assets)
• Posted strong production growth in Spraberry, Raton, Edwards, Tunisia and Alaska
• Increased 2008 production growth target to 18% to 20% from 14% versus 2007 in response to strong production growth to date, improved drilling efficiencies (more wells per rig) and operational success
• Raised 2008 capital budget by $300 million to fund a portion of the incremental production growth and to cover rising costs for tubulars, fuel and pumping services
• Advanced enhanced recovery initiatives and shale interval testing in Spraberry
• Confirmed contribution from two additional zones in Pierre Shale
• Drilled three new discovery wells in Tunisia
• Commenced production at Oooguruk on the North Slope of Alaska
• Closed the Pioneer Southwest Energy Partners L.P. IPO generating net proceeds of $163 million
Scott Sheffield, Chairman and CEO, stated,
"We are extremely pleased with the strong and consistent production growth our core operating areas continue to deliver. This strong performance and our investment discipline will result in the Company generating free cash flow beginning this year. Pioneer is at a significant inflection point, as we expect our 2009 discretionary cash flow to increase by approximately 50% and our earnings to double from 2008 levels based on current commodity prices and costs."
2008 Production Growth Target
Based on Pioneer's successful year-to-date production growth results and its remaining planned drilling activity, the Company has increased its 2008 production growth forecast to 18% to 20% from 14% compared to 2007. Pioneer has increased its 2008 capital budget from $1.0 billion to $1.3 billion (which excludes acquisitions, asset retirement obligations, capitalized interest and geological and geophysical G&A), and with the related increase in its 2008 production growth forecast, the Company expects to generate free cash flow for the year. The capital budget was increased to reflect drilling efficiencies (more wells per rig), operational success and today's higher cost environment, primarily for tubulars, fuel and pumping services. More specifically, drilling efficiencies in the Spraberry and Edwards fields are allowing wells to be drilled at a faster-than-expected pace which will result in the Company drilling and completing more wells during 2008. Additional development capital related to drilling success in the Edwards Trend and progressing front-end engineering planning for the Cosmopolitan project in Alaska is also being added to the 2008 budget.
Financial Review
Pioneer's second quarter net income was $159 million, or $1.32 per diluted share. Cash flow from operating activities for the second quarter was $333 million.
Second quarter oil sales averaged 30,229 barrels per day (BPD), natural gas liquids sales averaged 20,509 BPD and gas sales averaged 379 million cubic feet per day (MMCFPD).
The reported second quarter average price for oil was $89.73 per barrel and included $9.46 per barrel related to deferred revenue from volumetric production payments (VPPs) for which production was not recorded. The reported price for natural gas liquids was $56.30 per barrel. The reported price for gas was $8.73 per thousand cubic feet (MCF), including $.39 per MCF related to deferred revenue from VPPs for which production was not recorded.
Second quarter production costs averaged $13.93 per BOE. Production costs were primarily impacted by higher production taxes related to the increase in commodity prices.
Exploration and abandonment costs were $30 million for the quarter and included $1 million of acreage costs and $29 million of geologic and geophysical expenses, including seismic costs related to ongoing activities in the Edwards Trend and Tunisia and personnel costs.
In May, Pioneer completed the initial public offering of common units in Pioneer Southwest Energy Partners L.P. (PSE) and received net proceeds of $163 million. Pioneer retains an ownership interest in PSE of approximately 68%.
Operations
In the Spraberry field, production increased 21% in the first half of 2008 compared to the first half of 2007. Pioneer is increasing its forecast for full-year 2008 Spraberry production growth from approximately 15% to more than 18%. Production growth is exceeding expectations due to the strong incremental contribution from the Wolfcamp formation, operational efficiencies and a faster drilling pace related to improved drilling efficiency which has increased the number of wells being drilled per rig. The 2008 Spraberry drilling program is being expanded by 40 wells to 390 wells. Pioneer is currently running 17 rigs in the field and has drilled approximately 225 wells year-to-date.
Early results from Pioneer's 20-acre drilling, horizontal re-entry program and shale interval testing in the Spraberry field are encouraging. These results and the Company's plans to continue to increase its drilling activity in the field support expectations for 15% compound average annual growth in Spraberry production through 2011.
Pioneer's Raton Basin production increased 24% in the first half of 2008 compared to the first half of 2007. The Company has successfully integrated the properties acquired in December 2007 and is very encouraged with Pierre Shale drilling and test results to date which confirmed contribution from two additional zones. Raton production growth is expected to exceed 15% for 2008 versus 2007. To accommodate longer-term growth, Pioneer has added firm pipeline capacity to transport 75 MMCFPD from Raton to the West Coast beginning in 2011.
In the Edwards Trend in South Texas, Pioneer's production for the first half of 2008 rose 56% from a year ago. Year-to-date, the Company has drilled 22 Edwards wells, benefiting from reduced drilling time related to rig improvements and wellbore design enhancements. As a result, the 2008 drilling program is being expanded from 35 wells to 40 wells. Pioneer is steadily expanding infrastructure and treating capacity to accommodate new drilling and the higher producing rates seen in recent wells. The Company is also increasing its forecast for full-year 2008 Edwards Trend production growth from approximately 25% to more than 40%.
Pioneer's Barnett Shale drilling program is on track with seven operated wells drilled year-to-date. The Company plans to drill approximately 25 Barnett wells during 2008, including six wells operated by others. Early production results are in line with other wells in Parker County with peak-month daily rates averaging approximately 1 MMCFPD. Pioneer expects to expand its Barnett drilling program to include four operated rigs during 2009, targeting production of 100 MMCFPD gas equivalent by 2011.
In Tunisia, Pioneer continues to drill successful wells and expand its production facilities. During the second quarter, three successful wells were drilled and gross facility capacity in the Cherouq Concession was expanded to 10 thousand barrels of oil per day (MBOPD). Six to seven wells are planned for the second half of 2008 and gross facility capacity will be further increased to 20 MBOPD during the fourth quarter. Pioneer's net production from Tunisia is currently averaging more than 7.5 thousand barrels oil equivalent per day (MBOEPD), and the Company expects full-year 2008 production growth of 80% to 90% versus 2007.
Offshore South Africa, Pioneer's production from interests in the Sable oil field and the South Coast Gas (SCG) project averaged 3.7 MBOEPD during the second quarter. Late in the third quarter, it is anticipated that Sable oil production will be shut in to convert Sable's gas re-injection well to a producing well. The Sable gas well is expected to be the most productive well in the SCG system. Total gas equivalent production from SCG is expected to average approximately 10 MMCFPD to 15 MMCFPD net to Pioneer for the fourth quarter of 2008, rising to 30 MMCFPD to 35 MMCFPD net for the first half of 2009.
During the second quarter of 2008, the Oooguruk project on the North Slope of Alaska commenced production operations. Following the completion of scheduled mid-year maintenance at third-party onshore production facilities, production will be reinitiated. Net sales are expected to reach 3 MBOPD to 4 MBOPD by year-end 2008 and gradually increase to 10 MBOPD to 14 MBOPD by 2010 as development drilling continues.