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February 2005

Vol. 10, No. 7 Week of February 13, 2005

Pioneer overcomes problems to set production record

Unveils plans for aggressive 2005 exploration, drilling 20 high-profile wells

Ray Tyson

Petroleum News Houston Correspondent

Pioneer Natural Resources has fixed the operational problems that plagued the company in the Gulf of Mexico during the latter half of 2004, including an unplanned shutdown of the Canyon Express gas pipeline, a drilling rig ripped from its platform by Hurricane Ivan and a sick production well in the company’s flagship Falcon Corridor area.

Despite the disruptions, the big exploration and production independent managed to set a production record in the final quarter of 2004, thanks in large part to gains made in the U.S. Rockies by merger partner and subsidiary Evergreen Resources.

However, production setbacks in the U.S. Gulf have not dampened Pioneer’s exploration spirit. In fact, the Dallas-based company has decided to pull out all the stops during this year’s first quarter, planning to spend about 40 percent or $80 million to $110 million of its $235 million exploration budget for 2005 on seven “high-impact” wells in the United States and Africa.

In total, Pioneer plans to drill some 20 of these high-profile exploration wells during 2005 that, if successful, could net the company an additional 550 million barrels of oil equivalent reserves, Scott Sheffield, Pioneer’s chief executive officer, said in a Feb. 8 conference call with industry analysts.

“A lot of our capital is going to high-impact wells this year, as we have spent a lot of capital on building up inventory and seismic on the exploration front in 2003 and 2004,” he added.

Pioneer said it specifically plans this year to drill or participate in six to eight exploration wells in the Gulf of Mexico, three to five wells in Alaska, two to three wells in West Africa and five to seven wells in North Africa.

Last year: Gulf operational problems

But for a while last year, it looked as if Pioneer’s luck had run out in the U.S. Gulf, as one operational headache followed another.

Most recently, the pipeline that serves three deepwater gas fields in the eastern Gulf of Mexico was forced to shut down in early December because of a troublesome leak in the methanol delivery system that keeps hydrates from clogging sub-sea production wells.

Pioneer’s net share of production from the Canyon Express pipeline averaged about 90 million cubic feet per day prior to shut in of the King’s Peak, Aconcagua and Camden fields. France’s Total operates Canyon Express on behalf of fellow producers BP, Marathon Oil, Mariner Energy and Pioneer.

The leak in the pipeline that delivers methanol to the system, which parallels the 55-mile Canyon Express gas pipeline, was finally located on Jan. 1.

“We’ll be reinitiating production this week from all of our wells there … but it probably will take a week to ramp up to full capacity,” Sheffield said.

Hurricane Ivan caused damage

Prior to the leaky pipeline incident, the Canyon Express gas system was temporarily shut down in September as a safety precaution ahead of Hurricane Ivan, which caused widespread damage to offshore oil and gas facilities in the U.S. Gulf, including Pioneer’s Devils Tower development where high winds and heavy seas tore a drilling rig from the platform.

Hurricane damage postponed the completion of the remaining production wells at Devils Tower by at least six months, Sheffield said. However, he said the drilling rig is now back in service and that production would soon be ramping up.

Just prior to Hurricane Ivan, Pioneer shut in production from its deepwater Harrier field in the so-called Falcon Corridor in the western Gulf of Mexico because of early water encroachment. A sidetrack well was spud in mid-September to access an adjacent fault block in the field.

“The sidetrack is going much better than expected and is producing like the original well,” Sheffield said. He said Pioneer intends to drill two exploration wells in the corridor this year and two to three sidetracks in the area during 2005 and 2006.

To add insult to injury, Pioneer’s Tomahawk field was depleted in December and taken off line, just six months after production was launched from the Falcon satellite. However, another recent sub-sea tie-back to Falcon, Raptor, is alive and well.

“In fact, it’s producing a lot longer than expected,” Sheffield said, adding that Falcon’s two “bread and butter” wells also are performing as expected.

“So we still forecast it (Falcon) as a great project … and obviously we are still excited about it,” he said.

Pioneer holds a 100 percent working interest and operates all the fields in the Falcon Corridor, which in June was producing about 350 million cubic feet of gas and 1,000 barrels of condensate per day.

For the fourth quarter of 2004, Pioneer reported net income of $102 million or 69 cents per share, a 44 percent increase per share compared to the same period last year. Cash flow from operations for the 2004 fourth quarter was $347.1 million, an increase of 60 percent versus the year-ago period.

Pioneer attributed the spike in net income and cash flow primarily to a 17 percent increase in oil and gas production and stronger commodity prices compared to the year-ago period. Fourth-quarter oil and gas sales averaged 191,451 barrels oil equivalent per day, compared to 163,888 barrels per day reported for the year-ago quarter.

“We had a solid quarter as each of our divisions posted strong results, and with the addition of our new Rockies division, we’ve set a new production record,” said Tim Dove, Pioneer’s chief operating officer. “We expect to continue to add production from our core properties as we step up our development drilling program in 2005.”






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