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Pioneer Natural Resources Reports Third Quarter 2009 Results
03 Nov, 2009 @ 05:21 pm EDT
TEXAS--(BUSINESS WIRE)--Pioneer Natural Resources Company (NYSE:PXD) today announced financial and operating results for the quarter ended September 30, 2009.
Pioneer reported a third quarter net loss attributable to common stockholders of $7 million, or $.06 per diluted share. The loss included a noncash unrealized loss on commodity derivatives of $10 million after tax, or $.08 per diluted share. Without the effect of this item, adjusted income for the third quarter of 2009 would have been $3 million, or $.02 per diluted share.
Included in Pioneer’s third quarter results were net gains of $5 million after tax, or $.05 per diluted share related to unusual items. These after-tax unusual items included:
- gain on the sale of Pioneer’s Gulf of Mexico Shelf properties of $12 million after tax ($.11 per diluted share),
- hurricane-related charge of $2 million after tax ($.01 per diluted share) that is expected to be covered by insurance and
- stacked rig charges of $6 million after tax ($.05 per diluted share).
Recent highlights include:
- Third quarter production averaged approximately 113 thousand barrels oil equivalent per day (MBOEPD), up 2% compared to the third quarter of 2008, reflecting the strong performance of Pioneer’s low-decline assets during a period when drilling was severely curtailed.
- Third quarter production costs per barrel oil equivalent (BOE) were reduced by 24% from the third quarter of 2008 in response to the Company’s aggressive cost reduction initiatives.
- An aggressive drilling campaign in the Spraberry field was initiated.
- An Eagle Ford Shale well was successfully completed with an initial production rate of 11.3 million cubic feet equivalent per day of gas (MMCFEPD), consisting of 8.3 million cubic feet per day (MMCFPD) of liquids-rich gas and 500 barrels per day (BPD) of condensate.
- Long-term debt was reduced by $112 million during the third quarter as a result of asset sales and free cash flow. (Excluding the debt of its subsidiary, Pioneer Southwest Energy Partners L.P., attributable to its acquisition of properties from Pioneer, Pioneer’s debt reduction was $247 million.)
- Oil derivatives with price upside were added for 2010 and 2011, bringing forecasted oil production coverage to approximately 85% in both years.
- Gas derivatives with price upside were added for 2011, bringing forecasted gas production coverage to approximately 50% in 2011. Coverage for 2010 is 80%.
Scott Sheffield, Chairman and CEO, stated, “Despite a substantial reduction in drilling activity for 2009, our high-quality assets delivered production growth of 7% during the first nine months compared to last year, and we continue to expect full-year production growth of at least 5% per share. We remain committed to a free cash flow model, with excess cash flow being used to reduce debt this year.”
“Improving oil prices and our strong derivative positions support operating cash flow forecasts of approximately $1 billion in 2010 and $1.4 billion in 2011. As a result, we are aggressively ramping up our drilling program in the Spraberry field and will continue our successful oil development program in Alaska. We have also expanded our Eagle Ford Shale drilling program where we hold 310,000 gross acres in one of the premier shale plays in the U.S. With this drilling program and the expiration of our 5 MBOEPD volumetric production payment obligation, we expect to once again generate quarterly production growth in 2010, while preserving our free cash flow model.”
Operations Update
In the Spraberry field, Pioneer increased daily production for the first nine months of 2009 by 8% to 33 MBOEPD as compared to the same period in 2008. This production growth reflects the success of the 2008 drilling program, improved well performance and the Spraberry’s low production decline rates. Nine month results also include inventoried natural gas liquids (NGLs) sold during the first half of 2009 that were produced but not sold in the fourth quarter of 2008 as a result of hurricane damage to third-party fractionation facilities.
Pioneer resumed Spraberry drilling activities in August and now has three rigs drilling in the field, which is the largest onshore oil field in the U.S. lower 48 states. Pioneer is the largest producer in the Spraberry field. With a substantial reduction in well costs, Pioneer’s internal rate of return on Spraberry drilling has improved to approximately 50% before tax, at current strip prices for oil. As a result, the Company is aggressively ramping up Spraberry drilling and expects to have 14 rigs running by January 2010, increasing to 19 rigs by mid-year and 24 rigs by year end.
Approximately 425 Spraberry wells are expected to be drilled during 2010, with a continual ramp up in quarterly production anticipated. Fourth quarter production is expected to average approximately 29 MBOEPD during 2009 and increase 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 will also implement a 7,000-acre waterflood project in 2010.
The Company plans to continue to add rigs beyond 2010, and by 2012, Pioneer plans to be operating 40 rigs and drilling 1,000 wells per year. From 2009 through 2013, Spraberry production is expected to double with compounded annual production growth averaging approximately 20%.
In South Texas, Pioneer’s daily production for the first nine months of 2009 rose 4% to 76 MMCFPD versus the prior-year period benefiting from its strong 2008 Edwards Trend drilling program. The Company also recently announced a significant discovery in the Eagle Ford Shale play where it holds 310,000 gross acres overlaying the Edwards Trend. The Sinor #5 well flowed at an initial rate of approximately 11.3 MMCFEPD of gas (approximately 8.3 MMCFPD of liquids-rich gas and 500 BPD of higher-valued condensate). The liquids-rich gas contains 1,200 British thermal units per cubic foot. Pioneer now plans to continuously operate one rig in the play through 2010 and test the benefits of longer laterals and additional frac stages. The Company is drilling its next well and will evaluate a further rig expansion as additional drilling results are known. Pioneer is also exploring a joint venture strategy to accelerate development of its extensive Eagle Ford acreage position.
On the North Slope of Alaska, production from Pioneer’s Oooguruk field averaged 4 thousand barrels of oil per day (MBOPD) during the first nine months of 2009. Third quarter production averaged 6 MBOPD. Pioneer successfully drilled a total of five horizontal Nuiqsut laterals during the second and third quarters, three fracture-stimulated production wells and two unstimulated water injection wells. During the upcoming winter drilling season, the Company will resume drilling to the Kuparuk zone where the Company has previously drilled two high-rate producing wells.
In the Raton and Mid-Continent areas, no wells have been drilled during 2009, but due to the low production decline characteristics of these areas, nine-month production was down only 5% to 188 MMCFPD and 7% to 109 MMCFEPD, respectively, compared to last year. 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. Pioneer’s Mid-Continent production will increase by approximately 28 MMCFPD on January 1, 2010 with the expiration of the volumetric production payment (VPP) obligation in the Hugoton field.
Daily production in Tunisia increased 13% to 7 MBOEPD in the first nine months of 2009 as compared to the same period in 2008. Fourth quarter production is forecasted to average 6 MBOEPD reflecting planned gas pipeline repairs and the planned lifting schedule. Pioneer-operated drilling will recommence in early 2010 with three new prospects identified from new 3-D seismic. The Company is also participating in two non-operated wells being drilled in the Adam Concession during the fourth quarter of 2009.
In South Africa, daily production for the first nine months of 2009 increased 51% to 6 MBOEPD compared to the same period in 2008 reflecting the commencement of production from the most prolific well in Pioneer’s South Coast Gas project during the fourth quarter of 2008. A major maintenance shutdown commenced in late September and is expected to return to full capacity in early November at the Mossel Bay gas-to-liquids plant where the gas production is sold. As a result, fourth quarter forecasted production is expected to be curtailed by approximately 2 MBOEPD and average 4 MBOEPD.
Cost Reduction Initiatives
Pioneer’s asset teams have aggressively implemented initiatives to reduce 2009 lease operating expenses (LOE). Third quarter production costs were 24% lower on a per BOE basis than the same period in 2008. The Company has achieved significant reductions in electricity, water disposal, well servicing, facilities and compression costs. Compared to the second quarter of 2009, production costs were up 11% on a per BOE basis, primarily due to higher production taxes, increased workover and preventive maintenance activity and lower production volumes. The Company did not experience inflation in service costs and other base operating expenses during the quarter.
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 has reduced drilling and completion costs by more than 30% per well for the majority of its domestic drilling inventory.
Financial Review
Third quarter sales from continuing operations averaged 112,623 barrels oil equivalent per day (BOEPD), consisting of oil sales averaging 31,663 barrels per day (BPD), NGL sales averaging 18,602 BPD and gas sales averaging 374 MMCFPD.
The reported third quarter average price for oil was $78.20 per barrel and included $8.24 per barrel related to deferred revenue from VPPs for which production was not recorded. The reported price for NGLs was $33.13 per barrel. The reported price for gas was $3.64 per thousand cubic feet (MCF) and included $.35 per MCF related to deferred revenue from VPPs for which production was not recorded.
Third quarter production costs averaged $11.43 per BOE.
Depreciation, depletion and amortization (DD&A) expense averaged $15.69 per BOE for the third quarter. Exploration and abandonment costs were $25 million for the quarter and included $13 million of acreage and unsuccessful drilling costs and $12 million of geologic and geophysical expenses and personnel costs.
Cash flow from operating activities for the third quarter was $162 million.
Financial Outlook
Fourth quarter production is forecasted to average 105,000 BOEPD to 110,000 BOEPD, reflecting reduced 2009 drilling activity, downtime associated with the gas plant maintenance shutdown in South Africa and gas pipeline repairs and planned lifting schedule in Tunisia.
Fourth quarter production costs are expected to average $11.50 to $13.50 per BOE, based on current NYMEX strip prices for oil and gas, including higher production taxes and transportation costs, lower production volumes and increased workover activity. DD&A expense is expected to average $15.50 to $17.00 per BOE based on the new SEC reserve pricing methodology that is expected to be implemented during the fourth quarter of 2009.
Total exploration and abandonment expense during the fourth quarter is expected to be $20 million to $30 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 $42 million to $45 million. Accretion of discount on asset retirement obligations is expected to be $2 million to $4 million.
Noncontrolling interest in consolidated subsidiaries’ net income is expected to be $8 million to $10 million, primarily reflecting the public ownership in Pioneer Southwest.
The Company also expects to recognize $5 million to $10 million of charges in other expense associated with certain drilling rigs stacked as a result of the low price environment.
The Company’s fourth quarter 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 and 2011 oil and gas derivative positions to support the Company’s free cash flow model and the resumption of oil drilling. In particular, the Company recently added 2,000 BPD of three-way oil collar derivatives in 2010 and 9,000 BPD in 2011, with upside to approximately $87 per barrel and $107 per barrel, respectively. The Company also added 75,000 million British thermal units per day of three-way gas collar derivatives in 2011, with upside to $8.70 per million British thermal units.
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, November 4 at 9:00 a.m. Central Time, Pioneer will discuss its financial and operating results with an accompanying presentation. The call 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 (888) 395-3230 (confirmation code: 9764784) to listen by telephone and view the accompanying presentation at the website above. A telephone replay will be available by dialing (888) 203-1112 (confirmation code: 9764784).
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 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.
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PIONEER NATURAL RESOURCES COMPANY |
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UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS |
||||||||
| (in thousands) | ||||||||
| September 30, | December 31, | |||||||
| 2009 | 2008 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 55,615 | $ | 48,337 | ||||
| Accounts receivable, net | 137,517 | 207,553 | ||||||
| Income taxes receivable | 16,290 | 60,573 | ||||||
| Inventories | 145,976 | 76,901 | ||||||
| Prepaid expenses | 12,553 | 12,464 | ||||||
| Deferred income taxes | 3,417 | 6,510 | ||||||
| Derivatives | 41,280 | 59,622 | ||||||
| Other current assets, net | 10,314 | 14,951 | ||||||
| Total current assets | 422,962 | 486,911 | ||||||
| Property, plant and equipment, at cost: | ||||||||
| Oil and gas properties, using the successful efforts method of accounting | ||||||||
| 10,383,159 | 10,371,403 | |||||||
| Accumulated depletion, depreciation and amortization | (2,819,643 | ) | (2,511,401 | ) | ||||
| Total property, plant and equipment | 7,563,516 | 7,860,002 | ||||||
| Deferred income taxes | 2,572 | 553 | ||||||
| Goodwill | 309,371 | 310,563 | ||||||
| Derivatives | 35,772 | 72,594 | ||||||
| Other assets, net | 346,875 | 431,162 | ||||||
| $ | 8,681,068 | $ | 9,161,785 | |||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 220,330 | $ | 356,972 | ||||
| Interest payable | 28,481 | 43,247 | ||||||
| Income taxes payable | 12,745 | 3,618 | ||||||
| Deferred income taxes | 307 | - | ||||||
| Deferred revenue | 104,743 | 147,905 | ||||||
| Discontinued operations held for sale | 1,802 | - | ||||||
| Derivatives | 91,967 | 49,561 | ||||||
| Other current liabilities | 57,445 | 93,694 | ||||||
| Total current liabilities | 517,820 | 694,997 | ||||||
| Long-term debt | 2,867,298 | 2,899,241 | ||||||
| Deferred income taxes | 1,408,481 | 1,501,459 | ||||||
| Deferred revenue | 109,497 | 177,236 | ||||||
| Derivatives | 65,664 | 20,584 | ||||||
| Other liabilities | 178,076 | 187,409 | ||||||
| Stockholders' equity | 3,534,232 | 3,680,859 | ||||||
| $ | 8,681,068 | $ | 9,161,785 | |||||
| PIONEER NATURAL RESOURCES COMPANY | |||||||||||||||||||
| UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | |||||||||||||||||||
| (in thousands, except for per share data) | |||||||||||||||||||
| Three Months Ended | Nine Months Ended | ||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||
| 2009 | 2008 | 2009 | 2008 | ||||||||||||||||
| Revenues and other income: | |||||||||||||||||||
| Oil and gas | $ | 409,969 | $ | 600,413 | $ | 1,148,512 | $ | 1,777,579 | |||||||||||
| Interest and other | 503 | 2,285 | 99,761 | 33,697 | |||||||||||||||
| Gain (loss) on disposition of assets, net | (385 | ) | 190 | (447 | ) | 4,768 | |||||||||||||
| 410,087 | 602,888 | 1,247,826 | 1,816,044 | ||||||||||||||||
| Costs and expenses: | |||||||||||||||||||
| Oil and gas production | 90,394 | 107,159 | 285,617 | 297,299 | |||||||||||||||
| Production and ad valorem taxes |
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