Pioneer to boost capex spending by 58 percent

CEO Scott Sheffield tells analysts capital budget will go to $1.5 billion in 2007 and 2008, up from current $900-$950 million

Ray Tyson

Petroleum News Houston Correspondent

Pioneer Natural Resources is planning a huge increase in capital spending beginning in 2007 to help pay for various projects, including possible development of oil and gas discoveries. The big independent also easily beat analysts’ expectations for 2005 first-quarter earnings.

Pioneer chief executive Scott Sheffield told industry analysts in a May 3 conference call that the company intends to increase its capital budget to around $1.5 billion in 2007 and 2008 from current annual spending of between $900 million and $950 million.

Sheffield said the planned $1.5 billion capital budgets are based on “several existing projects” the company expects to sanction in 2005 and “several potential discoveries” it made in this year’s first quarter. However, he declined to discuss any of the projects in detail until the company was comfortable they would be approved.

“We also expect (other) successes the rest of this year and next year,” Sheffield said, noting that Pioneer participated in seven key exploration wells this year and expensed three dry holes drilled during the 2005 first quarter in the deepwater Gulf of Mexico, Nigeria and Tunisia.

Pioneer also took part in two wells in Alaska, one deepwater well at the Thunder Hawk prospect in the Gulf of Mexico and the Nour-1 well in Tunisia, “for which results will be announced after further testing and evaluation have been completed,” the company said.

Among the discoveries so far announced in 2005, Thunder Hawk stands out as one of the more impressive. Operator Murphy Oil uncovered more than 500 feet of net pay on the western portion of the prospect, which is located next to the largest discovery ever made in deepwater Gulf of Mexico, the BP-operated Thunder Horse field in Mississippi Canyon. The initial discovery at Thunder Hawk turned up about 300 feet of net pay. Pioneer holds a 12.5 percent interest in the prospect.

Five to seven wells planned in Alaska next winter

To prepare itself for bigger capital budgets down the road, Pioneer is strengthening its balance sheet through debt reduction, share buybacks and loading up on free cash flow generated by exceptionally strong oil and gas prices, Sheffield noted.

“We really see Pioneer allocating a lot of capital to these projects … which is one of the primary reasons we’re driving down the balance sheet over the next 12 to 24 months,” he added.

Pioneer also may use some of its cash to repurchase additional company stock and possibly acquire oil and gas properties in its core operating areas, Sheffield said. However, he added, “based on … the (high) prices that people are paying, we don’t anticipate spending much money on core area acquisitions.”

First quarter profit of 58 cents per share

Cash flow from operations for the 2005 first quarter was $334.9 million, a 32 percent increase compared to the $253.6 million the company earned for the same period in 2004. Pioneer’s long-term debt decreased by $554 million during the 2005 first quarter and the company ended the quarter with $1.83 billion in debt.

First-quarter oil and gas sales averaged 188,524 barrels of oil equivalent per day compared to 182,050 barrels per day sold during the same period last year.

During the first quarter, Pioneer also sold two volumetric production payments for total proceeds of about $593 million and repurchased 3.7 million shares for a total investment of $151.9 million. During April, the company said it sold a third volumetric production payment for proceeds of about $300 million and sold U.S. assets for proceeds of around $25 million, and announced the pending sale of non-core assets in Canada for expected proceeds of about $207 million.