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Pioneer Raises Long-Term Production Growth Target to 14+% and Increases Net Resource Potential by 1.1 Billion Barrels Oil Equivalent
Announces Initiatives to Capture Additional Resource Potential in
the Spraberry Field
DALLAS--(BUSINESS WIRE)--April 7, 2008--Pioneer Natural Resources Company (NYSE:PXD) today announced that it is raising its target for compound average annual production growth per share to 14+% through 2011, without additional share repurchases, up from 12+% previously. Pioneer also announced that its estimate of the total net resource held in its oil and gas assets has been increased by approximately 1.1 billion barrels oil equivalent (BOE) to 2.8 billion BOE, including year-end 2007 proved reserves of 964 million BOE and net resource potential of approximately 1.9 billion BOE. The additional production growth and increase to net resource potential reflect the expected impact of new initiatives to recover incremental reserves in the Spraberry field in the Permian Basin in West Texas and a new gas discovery in the Pierre Shale in the Raton Basin in southeastern Colorado.
Scott Sheffield, Pioneer's Chairman and CEO, stated, "We are very excited to increase our long-term production growth target while continuing to generate significant free cash flow. With extensive infrastructure in place and no incremental entry costs, the additional potential on our resource-rich Permian and Raton Basin acreage is expected to generate strong returns, enhance organic reserve growth and add significant net asset value. This new resource potential further expands our inventory of low-risk drilling locations supporting consistent, repeatable production growth for years to come."
Spraberry Enhanced Recovery Initiatives
Considering the step-change in commodity prices, Pioneer's Permian Basin asset team initiated a comprehensive study during 2007 to quantify the additional resource upside offered by enhanced recovery techniques in the Spraberry field, the fifth largest oil field and the 15th largest gas field in the U.S. according to the Energy Information Administration. Of the ten largest oil fields in the U.S., the Spraberry field is the only onshore field from which production has increased since 2003. Pioneer is the largest driller and producer in the field with 869,000 gross acres (more than 75% held by production), 5,300 active wells and 16 rigs currently operating.
The study resulted in the following updated field metrics: -- More than 30 billion BOE of original oil in place, with ultimate recoverable reserves of 3.5 billion BOE (recoverable reserves source: Nehring Associates) -- Primary recovery factor of 12% to 13% based on 40-acre well spacing -- Potential to increase primary recovery by an additional 6% through 20-acre infill drilling -- Historical results that suggest the potential to recover an additional 9% through secondary recovery via waterflooding
Pioneer had recorded 481 million BOE of net proved Spraberry reserves as of year-end 2007, and based on the comprehensive study, the Company estimates that the field has 1 billion BOE of additional net resource potential further detailed below:
-- 200 million BOE of resource potential, beyond the 248 million BOE of proved undeveloped reserves already booked, related to ongoing field development on 40-acre spacing with deeper Wolfcamp drilling where applicable -- 500 million BOE of resource potential related to 9,500 high-graded 20-acre infill well locations -- 300 million BOE of resource potential related to secondary recovery via waterflooding in selected areas
Historical downspacing performance suggests that 20-acre infill wells can be expected to recover 75% to 80% of the reserves being recovered by 40-acre wells. Pioneer drilled four successful 20-acre infill wells during the first quarter and plans to drill 20 to 25 additional 20-acre wells during the remainder of 2008.
Historical waterflood results from ten projects in the Spraberry field have recovered 82 million barrels of oil reserves and suggest that secondary waterfloods, where appropriate, can be expected to recover an additional 50% of the reserves recovered under primary recovery. Pioneer estimates that approximately 40% of its Spraberry acreage has potential for secondary recovery through waterflooding and plans to initiate a large-scale waterflood program during 2009.
In addition, Pioneer sees substantial upside from advances in completion technology and plans to fracture stimulate five previously drilled horizontal wells with isolation packers.
The Company estimates that its acreage in the Spraberry field holds a drilling inventory of approximately 19,000 locations. Pioneer plans to accelerate drilling beginning in 2009 and expects to add approximately 250 million BOE of proved reserves over the next five years and deliver 15% compounded average annual production growth from the Spraberry field through 2011. The program is supported by strong returns and no incremental entry costs. Assuming an oil price of $95 per barrel, and recognizing Pioneer's scale efficiencies from existing operations, the Company estimates that the before-tax internal rates of return for 40-acre wells and 20-acre wells average 50% and 40%, respectively.
Pierre Shale Discovery
Over the last 18 months, Pioneer has identified and begun developing a new shale resource play which lies under its existing acreage in the Raton coal bed methane (CBM) field. The play encompasses approximately 134,000 acres of the 318,000 acres Pioneer has leased in the Raton field, all of which is held by current Raton CBM production with no incremental entry cost. In establishing the areal extent of the commercial section of the Pierre Shale, Pioneer has drilled five wells in the "fairway," which are currently producing in the aggregate approximately 2 million cubic feet of gas per day from one of five prospective zones, and five additional wells currently in the early stages of completion and production to test the boundaries of the play.
The Pierre Shale is a Mancos-equivalent, Cretaceous-aged laminated shale found at depths of 4,000 to 6,000 feet. The gross overall thickness of the shale ranges from 2,200 to 2,800 feet, and completions to-date have focused on the lowest of five intervals with commercial pay of 200 to 400 net feet.
Based on whole core evaluations and well control information, Pioneer estimates that the original gas in place under its acreage in the Pierre Shale is approximately 21 trillion cubic feet (Tcf) and that total net gas resource potential exceeds 2 Tcf. Pioneer recorded 18 billion cubic feet (Bcf) of proved reserves as of December 31, 2007, and expects proved reserves from the Pierre Shale to reach 70 Bcf by the end of 2008 and exceed 200 Bcf by the end of 2010.
Based on 80-acre well spacing, Pioneer believes it has approximately 1,200 risk-adjusted potential drilling locations in the Pierre Shale. Wells will be tied into Pioneer's extensive existing CBM infrastructure and drilled from both existing and new pads, utilizing the Company's integrated well service model and benefiting from related drilling efficiencies.
The initial two vertical Pierre Shale discovery wells have been producing from the lowest interval only (Kp1) for 16 months and 10 months, respectively. Two shallower productive intervals (Kp2 and Kp3) have also been identified. Future activities will include assessing the potential upside from horizontal drilling, which is currently underway, and the potential to produce from the two shallowest shale intervals (Kp4 and Kp5).
Vertical well costs are expected to average approximately $1.0 million with each fractured interval adding approximately $200,000. Finding and development costs are expected to average $10 to $15 per BOE with an average before tax internal rate of return of approximately 40% at an average gas price of $8 per thousand cubic feet (Mcf).
From the lowest Pierre Shale interval only, initial production per well is expected to average 750 Mcf per day. During 2008, Pioneer plans to drill 175 wells in the Raton Basin, including 15 Pierre Shale wells. Pierre Shale activity is expected to accelerate in 2009, supporting a compounded average annual production growth rate from the Raton Basin of 10% to 15%.
First Quarter Production Update
Pioneer also announced that it expects first quarter 2008 production to be near the upper end of the previously announced guidance range of 103,000 to 109,000 BOE per day, up approximately 20% from first quarter 2007.
Upcoming Investor Presentations
Scott Sheffield will discuss Pioneer's initiatives to capture additional resource potential in the Spraberry Trend and its new shale play in the Raton Basin at the Independent Petroleum Association of America's (IPAA) Oil & Gas Investment Symposium on April 8, 2008 at 9:10 a.m. ET. Any interested person may listen to a live feed of the IPAA presentation and view the presentation slides, or access an archived version afterwards, by logging on to Pioneer's website at www.pxd.com, selecting 'Investor,' and then selecting 'Investor Presentation.' Mr. Sheffield will also discuss these topics at the Howard Weil Energy Conference on April 9, 2008 at 8:50 a.m. CT. The presentation slides for this conference will be available on April 7, 2008 on Pioneer's website, www.pxd.com. To access the presentation, Select 'Investor,' then 'Investor Presentation.'
Pioneer Natural Resources Company 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 about Pioneer Natural Resources Company 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, third party approvals, 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 implement its business plans (including its plan to repurchase stock) or complete its development projects as scheduled, access to and cost of capital, uncertainties about estimates of reserves and resource potential and the ability to book proved reserves in the future, the assumptions underlying production forecasts, quality of technical data and environmental and weather risks. 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 U.S. Securities and Exchange Commission (the "SEC") 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 terms in this release, such as "resource potential," "total resource," "original oil in place," "original gas in place," "ultimate recoverable reserves" or other descriptions of volumes of reserves that the SEC's guidelines strictly prohibit Pioneer 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 disclosure in our most recent Form 10-K, file No. 1-13245, available from us at Investor Relations, 5205 N. O'Connor Blvd., Suite 200, Irving, Texas 75039. You can also obtain this form 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.
CONTACT: Pioneer Natural Resources
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