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Pioneer Natural Resources Reports Year-End 2008 Proved Reserves and Finding Costs
DALLAS--(BUSINESS WIRE)--Pioneer Natural Resources Company (“Pioneer”) (NYSE:PXD) today announced that the Company added proved reserves totaling 110 million barrels oil equivalent (MMBOE) during 2008 from discoveries, extensions, technical revisions and acquisitions. These additions equate to 246% of full-year 2008 production. Approximately 87% of the additions (96 MMBOE) resulted from drilling success and performance improvements in Pioneer’s core U.S. areas (Spraberry, Raton, Edwards Trend, Mid-Continent, Barnett Shale and Alaska). The remaining 13% (14 MMBOE) was attributable to bolt-on acquisitions in the Spraberry, Edwards Trend and Barnett Shale areas.
The drillbit finding and development (F&D) cost for the proved reserve additions from drilling success and performance improvements (discoveries, extensions and technical revisions) was $13.82 per barrel oil equivalent (BOE). This result reflected a 39% improvement compared to 2007 and beat Pioneer’s targeted drillbit F&D cost for 2008 of $15 to $20 per BOE.
Scott D. Sheffield, Pioneer’s Chairman and CEO, stated, “We delivered another strong year of proved reserve replacement with the drillbit and again reduced our organic F&D cost, despite the upward pressure on drilling and development costs that we experienced for most of the year. This performance demonstrates the quality of our core assets and the potential for continuing growth in the future.”
Sheffield continued, “In the U.S., reserve additions were attributable to our Wolfberry play, our ongoing 40-acre drilling program and the implementation of our 20-acre downspacing initiative in the Spraberry field. We also benefited from additional discoveries in the Edwards Trend and expansion efforts in the Pierre Shale and Barnett Shale. In Alaska, results from our Oooguruk drilling are better than anticipated. Results in Tunisia were below expectations due to a combination of factors, including several wells awaiting testing, gas discoveries which cannot be booked at this time and two unsuccessful wells. Over the past three years, we have added significant reserves in Tunisia at an attractive F&D cost of approximately $9 per barrel and are optimistic about future growth opportunities.”
Total proved reserve additions of 110 MMBOE during 2008 were partially offset by negative price revisions totaling 69 MMBOE. As required by current Securities and Exchange Commission (SEC) reporting rules, year-end proved reserve volumes are calculated using prices on December 31, 2008. The price of oil on December 31, 2008 was approximately $45 per barrel, less than half of the approximately $96 per barrel level on the last day of 2007 when Pioneer’s proved reserves were last reported. The SEC also requires that proved reserves be calculated using service and production costs indicative of late-2008 levels. The dramatic decline in the price of oil, coupled with service and production costs that were much higher than could be supported by the lower year-end commodity prices on an ongoing basis, were the primary contributors to the negative price revisions.
Pioneer would expect to recover approximately 75% of the negative price revisions if oil recovered to $60 per barrel and year-end 2008 production costs declined by 10%.
The SEC recently published new rules for reporting year-end reserves which will go into effect for the calendar year 2009. Pursuant to the new rules, prices to be used to calculate year-end reserves will be based on the average of the prices that were in effect on the first trading day of each calendar month of the year rather than on the price that was in effect on the last trading day of the year. If Pioneer had been able to use 12-month average pricing for 2008 based on the upcoming SEC rules (approximately $102 per barrel for oil and $9 per thousand cubic feet for gas), the Company would not have experienced any negative price revisions.
The table below shows the proved reserves that would be recaptured from the negative price revisions of 69 MMBOE if various NYMEX price and production cost sensitivities were used instead of those in effect on December 31, 2008.
The Company expects production costs to decline more than the 10% assumed in the above sensitivity cases, but used 10% to be conservative. The Company was also conservative in keeping well costs at December 2008 levels, recognizing that these costs have already decreased significantly.
After taking into account the Company’s reserve adds during 2008, offset by the negative price revisions and production during the year, total proved oil and gas reserves were 960 MMBOE as of December 31, 2008, essentially flat with year-end 2007. Approximately 97% of these reserves are in the United States and 58% are proved developed (PD). Approximately 52% of the Company’s proved reserves are gas and 48% are oil and natural gas liquids. Pioneer’s reserves are long-lived with a total reserves-to-production ratio of approximately 21 years and a PD reserves-to-production ratio of 12 years. The Company’s long-lived reserves, with very low relative production decline rates, are particularly attractive in the current low commodity price environment in which industry drilling activity is significantly curtailed.
Excluding the impact of price revisions, the Company replaced 246% of its 2008 production at an all-in finding and development cost for 2008 of $13.28 per BOE. With these price revisions included, the Company replaced 92% of its 2008 production at an all-in finding and development cost of $35.51 per BOE.
Pioneer’s capital spending for exploration and development activities during 2008 totaled $1.23 billion, which was approximately 5% below its full-year capital budget of $1.3 billion (which excludes acquisitions, asset retirement obligations, capitalized interest and geological and geophysical G&A). Total costs incurred were $1.46 billion (which includes exploration and development spending, acquisitions, asset retirement obligations, capitalized interest and geological and geophysical G&A).
The low commodity prices and higher costs at year-end 2008 resulted in a pre-tax present value of future net cash flows discounted at 10% (PV-10) of approximately $3.9 billion for Pioneer’s proved reserves. The table below shows how the PV-10 value would increase using the same NYMEX price and production cost sensitivities listed above.
Netherland, Sewell & Associates, Inc. (NSAI), an independent reserve engineering firm, audited the proved reserves of significant fields. NSAI’s audit covered properties representing approximately 87% of Pioneer’s total proved reserves at year-end 2008.
Year-end proved reserves, costs incurred and a reconciliation of PV-10 to Standardized Measure are detailed in the attached supplemental schedules.
Information regarding 2008 reserves and finding costs will be included in the quarterly call scheduled for Wednesday, February 4, at 9:00 a.m. Central Time, when Pioneer will discuss its financial and operating results with an accompanying presentation. The discussion will be webcast on Pioneer’s website, www.pxd.com. The presentation will be available on the website for preview in advance of the call. At the website, select ‘INVESTORS’ at the top of the page. For those who cannot listen to the live webcast, a replay will be available shortly thereafter. Or you may choose to dial (877) 741-4248 (confirmation code: 1254547) to listen to the call by telephone and view the accompanying visual presentation at the website above. A telephone replay will be available by dialing (888) 203-1112 (confirmation code: 1254547).
Pioneer is a large independent oil and gas exploration and production company, headquartered in Dallas, Texas, with operations in the United States, South Africa and Tunisia. 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 Natural Resources Company 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 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 projects 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, NGLs and gas production, the assumptions underlying production forecasts, uncertainties about estimates of reserves and resource potential and the ability to add proved reserves in the future, 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.
Cautionary Note to U.S. Investors -- The United States Securities and Exchange Commission permits oil and gas companies, in their filings with the SEC, to disclose only proved reserves that a company has demonstrated by actual production or conclusive formation tests to be economically and legally producible under existing economic and operating conditions. Pioneer uses certain calculations in this release, such as a reserve replacement ratio that describes reserve additions from discoveries, extensions, technical revisions and acquisitions, excluding the impact of negative price revisions, as a percentage of Pioneer's 2008 production; the estimated impact of applying the 12-month-average pricing provisions of the oil and gas reserve reporting rules recently promulgated by the SEC; and the reserves that would be recaptured from the negative price revisions at various price scenarios, in each case, that the SEC's guidelines strictly prohibit us from including in filings with the SEC. These estimates are by their nature more speculative than estimates of proved reserves and accordingly are subject to substantially greater risk of being recovered by Pioneer. U.S. investors are urged to consider closely the disclosures in the Company’s periodic filings with the SEC, available from the Company at 5205 N. O’Connor Blvd., Irving, Texas 75039, Attention: Investor Relations, and the Company’s website at www.pxd.com. These filings also can be obtained from the SEC by calling 1-800-SEC-0330.
"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 costs incurred excluding acquisitions 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.
Pioneer Natural Resources Investors: Frank Hopkins, 972-969-4065 Matt Gallagher, 972-969-4017 Nolan Badders, 972-969-3955 or Media and Public Affairs: Susan Spratlen, 972-969-4018
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