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Pioneer Natural Resources Reports Fourth Quarter 2009 Results
DALLAS, Feb 02, 2010 (BUSINESS WIRE) -- Pioneer Natural Resources Company (NYSE:PXD) today announced financial and operating results for the quarter and year ended December 31, 2009.
Pioneer reported fourth quarter net income attributable to common stockholders of $57 million, or $.48 per diluted share. Net income included a noncash unrealized loss on commodity derivatives of $38 million after tax, or $.32 per diluted share. Without the effect of this item, adjusted income for the fourth quarter of 2009 would have been $95 million, or $.80 per diluted share.
Also included in Pioneer's fourth quarter results was income of $73 million after tax, or $.62 per diluted share, related to unusual items. These unusual items included:
2009, fourth quarter and recent highlights included:
Scott Sheffield, Chairman and CEO, stated, "Despite a substantial reduction in drilling activity for 2009, our high-quality assets delivered year-over-year production growth. We also delivered free cash flow and improved financial flexibility. We remain committed to a free cash flow model going forward.
"Improved oil prices and our strong derivative positions support operating cash flow forecasts of approximately $1.0 billion in 2010 and $1.3 billion in 2011. As a result, we have aggressively ramped up our drilling program in the Spraberry field and will continue our successful development program in Alaska. We also have 2 rigs operating in the burgeoning Eagle Ford Shale play. With this drilling program and the expiration of our 5 MBOEPD volumetric production payment obligation, we expect to generate quarterly production growth in 2010 and thereby increase production by at least 10% between the fourth quarter of 2009 and the fourth quarter of 2010. This growth rate could be higher when we significantly ramp up drilling activity in the Eagle Ford Shale later in 2010. Beyond 2010, we expect a further increase in our Spraberry and Eagle Ford Shale drilling programs and expect to resume double-digit annual production growth in 2011 and beyond."
In the Spraberry field, Pioneer grew production for the fourth consecutive year. Despite the significant reduction in drilling activity from 370 wells in 2008 to 48 wells in 2009, production in 2009 was 8% higher than in 2008. This production growth reflects the success of the 2008 drilling program, improved well performance and the Spraberry field's low production decline rates.
The Spraberry field is the largest onshore oil field in the U.S. lower 48 states, and Pioneer is the largest producer in the field. With a substantial reduction in well costs, Pioneer's internal rate of return on Spraberry field drilling has improved to approximately 50% before tax at current NYMEX strip prices for oil and gas. As a result, the Company is aggressively ramping up drilling activity in the field with 14 rigs running in February, increasing to 19 rigs by midyear and 24 rigs by year end.
Approximately 425 Spraberry wells are expected to be drilled during 2010, which is expected to generate quarter-to-quarter production growth. Fourth quarter 2009 production averaged 31 MBOEPD and is forecasted to increase by at least 10% to approximately 34 MBOEPD in the fourth quarter of 2010. The majority of these wells will include completions in additional zones, including the Wolfcamp and shale/silt intervals. Pioneer has also commenced a 7,000-acre waterflood project and expects to see an initial response by early 2011.
The Company plans to continue to add rigs beyond 2010, targeting 40 rigs and drilling 1,000 wells per year by 2012. From 2009 through 2013, Spraberry field production is expected to double, reflecting a compounded annual production growth rate of approximately 20%.
As Pioneer ramps up Spraberry field drilling, the Company will continue to focus on controlling drilling costs. Tubular and pumping unit requirements have been contracted through 2011, and sand supply has been contracted through 2012. The Company is also expanding its integrated services in the Spraberry field. One of the Company-owned fracture stimulation fleets has been transferred from the Raton field to the Spraberry field, and a second fleet is being acquired to commence completions in 2011. The Company also plans to purchase ten drilling rigs to cover 20% to 25% of its forecasted 2012 and forward Spraberry field drilling programs.
In South Texas, the Company recently announced its second successful well in the Eagle Ford Shale play. The Crawley #1 well flowed at an initial rate of 17 MMCFPD of gas, representing the highest gas rate reported to date in the play, and confirms that dry gas wells provide strong economics at today's prices.
The Company holds 310,000 gross acres in the Eagle Ford Shale play, mostly in the condensate window. To accelerate development of this substantial acreage position, the Company is actively pursuing a joint venture, with bids expected in the second quarter of 2010. In response to the joint venture effort and in preparation for an aggressive development drilling program to be initiated in this play later in 2010, Pioneer formed a new asset team to focus solely on the Eagle Ford Shale.
Pioneer is a technology leader in the Eagle Ford Shale with greater than 2,000 square miles of 3-D seismic data, logs from more than 150 operated wells, proprietary core samples and micro-seismic results. The Company is currently operating a two-rig horizontal drilling program, with wells underway in DeWitt and Karnes Counties, both targeting liquids-rich areas.
Pioneer's forecasted daily production from South Texas is expected to increase approximately 10% in the fourth quarter of 2010 as compared to the fourth quarter of 2009. The increase assumes that risked production from a two-rig Eagle Ford Shale drilling program will more than offset natural field declines in the Edwards Trend. Additional production growth is anticipated once the Company completes the joint venture process and begins ramping up its drilling program beyond two rigs, which is expected later in 2010.
On the North Slope of Alaska, production from Pioneer's Oooguruk field grew more than 300% in 2009, as compared to 2008, in response to the successful drilling of two Kuparuk wells (one production well and one water injection well) and five Nuiqsut wells (three fracture-stimulated production wells and two unstimulated water injection wells). The Company recently resumed drilling in the Kuparuk formation, where it has previously drilled two high-rate producing wells. After the winter drilling season ends for the Kuparuk formation, drilling will resume in the Nuiqsut formation. A third reservoir will also be tested during the first half of 2010. As a result of this drilling program, Pioneer is forecasting that production in the fourth quarter of 2010 will grow by 60% to 70%, as compared to the fourth quarter 2009 production rate of 5.5 thousand barrels oil per day (MBOPD).
In the Raton and Mid-Continent areas where drilling was curtailed during 2009, production decreased 6% to 186 MMCFPD and 8% to 107 million cubic feet equivalent per day (MMCFEPD), respectively, compared to 2008, reflecting the low production decline characteristics of these assets. The reduction in Mid-Continent production included the curtailment of approximately 6 MMCFEPD during the second quarter of 2009 due to an unscheduled third-party pipeline repair. Raton production is forecasted to decline by approximately 6% between the fourth quarter of 2009 and the fourth quarter of 2010, assuming drilling continues to be curtailed in this field. In the Mid-Continent area, production increased by approximately 28 MMCFPD on January 1, 2010 with the expiration of the volumetric production payment (VPP) obligation in the Hugoton field. As a result, although no significant drilling is scheduled for the Mid-Continent area in 2010, production in the fourth quarter of 2010 is expected to be approximately 18% higher than the comparable quarter in 2009.
Daily production in Tunisia increased 4% to 7 MBOEPD in 2009 as compared to 2008. Pioneer-operated drilling will resume in March 2010, targeting three new prospects identified from new 3-D seismic. The Company will also be participating in three non-operated wells during 2010. This drilling program is expected to provide production growth of approximately 10% to 15% between the fourth quarter of 2009 and the fourth quarter of 2010.
In South Africa, a major maintenance shutdown commenced in late September and was expected to be completed in early November at the Mossel Bay gas-to-liquids plant where Pioneer's gas production is sold. As a result, Pioneer's fourth quarter production was expected to be curtailed by approximately 12 MMCFEPD and average 24 MMCFEPD. However, the shutdown lasted longer than anticipated, resulting in fourth quarter production averaging only 9 MMCFEPD. Production resumed at full capacity in early January and is expected to be approximately 200% higher in the fourth quarter of 2010 than the fourth quarter of 2009.
MMS Royalty Refund
The royalty refund from the MMS of $119 million before tax, recognized by Pioneer in fourth quarter earnings, relates to a federal court ruling that the MMS did not have the authority to insert price thresholds into deepwater Outer Continental Shelf (OCS) leases that were issued pursuant to the OCS Deep Water Royalty Relief Act of 1995, an act designed to encourage deepwater exploration by providing lessees with royalty free leases until certain volume thresholds were achieved. Since Pioneer operated in the deepwater Gulf of Mexico and paid royalties on certain leases subject to that act, the Company has filed for a refund from the MMS of $119 million before tax and expects to receive the refund in the first half of 2010.
Capital spending for 2010 (excluding lease extensions, acquisitions, asset retirement obligations, capitalized interest and G&G G&A) is initially targeted at $800 million to $900 million and is focused on oil drilling. The lower end of the range includes drilling 425 Spraberry wells, running two rigs in the Eagle Ford Shale and one rig in Alaska, and drilling six wells in Tunisia (three operated and three non-operated). The upper end of the range assumes gas prices strengthen to a sustainable level that would support the recommencement of drilling in the Raton, Edwards Trend and Barnett Shale. Operating cash flow to fund this capital spending is forecasted to be approximately $1 billion, assuming current NYMEX strip pricing. Proceeds from the MMS refund will likely be used to support a further increase in Spraberry and Eagle Ford Shale drilling.
Cost Reduction Initiatives
Pioneer's asset teams have aggressively implemented initiatives to reduce 2009 production costs. Fourth quarter production costs were 22% lower per BOE than the same period in 2008. The Company achieved significant reductions in electricity, water disposal, well servicing, facilities and compression costs. Compared to the third quarter of 2009, fourth quarter production costs per BOE were up slightly (1%), primarily as a result of the reduced production from the Company's lower operating expense South Africa asset and increased workover expenses being offset by production tax refunds recorded during the quarter. The increased workover activity was primarily related to restoring production on oil wells with the improvement in oil prices.
The Company has also worked with service providers to reduce drilling and completion costs. Since the third quarter of 2008 when these costs peaked, Pioneer's drilling and completion costs have decreased by more than 30% per well for the majority of its domestic drilling inventory.
Fourth quarter sales from continuing operations averaged 106 MBOEPD, consisting of oil sales averaging 31 MBOPD, NGL sales averaging 19 thousand barrels per day and gas sales averaging 338 MMCFPD.
The reported fourth quarter average price for oil was $88.16 per barrel and included $8.47 per barrel related to deferred revenue from VPPs for which production was not recorded. The reported price for NGLs was $37.54 per barrel. The reported price for gas was $4.56 per thousand cubic feet (MCF) and included $.40 per MCF related to deferred revenue from VPPs for which production was not recorded.
Fourth quarter production costs averaged $11.60 per BOE.
Depreciation, depletion and amortization (DD&A) expense averaged $14.52 per BOE for the fourth quarter. Exploration and abandonment costs were $20 million for the quarter and included $6 million of acreage abandonment and unsuccessful drilling costs and $14 million of geologic and geophysical expenses and personnel costs.
Cash flow from operating activities for the fourth quarter was $132 million.
First quarter 2010 production is forecasted to average 112 MBOEPD to 117 MBOEPD, reflecting increased 2010 drilling activity, the expiration of the VPP obligation in the Hugoton field, the return of production in South Africa after the maintenance shutdown and the planned oil lifting schedule for Tunisia.
First quarter production costs are expected to average $11.50 to $13.50 per BOE, based on current NYMEX strip prices for oil and gas. DD&A expense is expected to average $14.50 to $16.00 per BOE.
Total exploration and abandonment expense during the first quarter is expected to be $25 million to $35 million, primarily related to exploration wells, including related acreage costs, and seismic and personnel costs.
General and administrative expense is expected to be $35 million to $39 million, interest expense is expected to be $45 million to $48 million, and other expense is expected to be $12 million to $17 million. Accretion of discount on asset retirement obligations is expected to be $2 million to $4 million.
Noncontrolling interest in consolidated subsidiaries' income, excluding noncash mark-to-market adjustments, is expected to be $9 million to $12 million, primarily reflecting the public ownership in Pioneer Southwest Energy Partners L.P.
The Company's effective income tax rate is expected to range from 40% to 50% based on current capital spending plans, higher tax rates in Tunisia and no significant mark-to-market changes in the Company's derivative position. Cash taxes are expected to be $10 million to $15 million and are primarily attributable to Tunisia.
Pioneer has increased its 2010 through 2012 commodity price derivative positions to support the Company's free cash flow model and the resumption of oil drilling. The Company has derivative positions covering approximately 85%, 90% and 35% of its forecasted oil production for 2010, 2011 and 2012, respectively, and derivative positions covering 85%, 70% and 25% of its forecasted gas production for 2010, 2011 and 2012, respectively.
The Company's financial and mark-to-market results, derivatives for oil, NGL and gas, amortization of net deferred gains on discontinued/terminated commodity hedges and future VPP amortization are outlined on the attached schedules.
Earnings Conference Call
On Wednesday, February 3, 2010 at 9:00 a.m. Central Time, Pioneer will discuss its financial and operating results for the quarter and year ended December 31, 2009, with an accompanying presentation. Instructions for listening to the call and viewing the accompanying presentation are shown below.
Telephone: Dial (877) 675-4751 confirmation code: 9545624 five minutes before the call. View the presentation via Pioneer's internet address above.
A replay of the webcast will be archived on Pioneer's website. A telephone replay will be available through March 3 by dialing (888) 203-1112, confirmation code: 9545624.
Pioneer is a large independent oil and gas exploration and production company, headquartered in Dallas, Texas, with operations primarily in the United States. For more information, visit Pioneer's website at www.pxd.com.
Except for historical information contained herein, the statements in this News Release are forward-looking statements that are made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995.Forward-looking statements and the business prospects of Pioneer are subject to a number of risks and uncertainties that may cause Pioneer's actual results in future periods to differ materially from the forward-looking statements. These risks and uncertainties include, among other things, volatility of commodity prices, product supply and demand, competition, the ability to obtain environmental and other permits and the timing thereof, other government regulation or action, the ability to obtain approvals from third parties and negotiate agreements (including joint venture agreements) with third parties on mutually acceptable terms, international operations and associated international political and economic instability, litigation, the costs and results of drilling and operations, access to and availability of drilling equipment and transportation, processing and refining facilities, Pioneer's ability to replace reserves, implement its business plans or complete its development activities as scheduled, access to and cost of capital, the financial strength of counterparties to Pioneer's credit facility and derivative contracts and the purchasers of Pioneer's oil, NGL and gas production, uncertainties about estimates of reserves and resource potential and the ability to add proved reserves in the future, the assumptions underlying production forecasts, quality of technical data, environmental and weather risks, and acts of war or terrorism. These and other risks are described in Pioneer's 10-K and 10-Q Reports and other filings with the Securities and Exchange Commission. In addition, Pioneer may be subject to currently unforeseen risks that may have a materially adverse impact on it. Pioneer undertakes no duty to publicly update these statements except as required by law.
"Finding and development cost per BOE" means total costs incurred divided by the summation of annual proved reserves, on a BOE basis, attributable to revisions of previous estimates, purchases of minerals-in-place and discoveries and extensions. Consistent with industry practice, future capital costs to develop proved undeveloped reserves are not included in costs incurred.
"Drillbit finding and development cost per BOE" means the summation of exploration and development costs incurred divided by the summation of annual proved reserves, on a BOE basis, attributable to revisions of previous estimates and discoveries and extensions. Consistent with industry practice, future capital costs to develop proved undeveloped reserves are not included in costs incurred.
SOURCE: Pioneer Natural Resources Company
Pioneer Natural Resources
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