Oil Patch Insider

Pioneer CEO confirms reduction in exploration spending; Auditor wants Alberta royalty shake-up

In a speech on Oct. 5 at the Independent Petroleum Association of America’s 2006 Oil and Gas Investment Symposium, Scott Sheffield, chairman and CEO of Pioneer Natural Resources, confirmed that his company has cut back on its capital expenditure on exploration. In March Pioneer reported a cut in exploration spending to reflect the company’s “commitment to significantly decrease its spending on higher-risk exploration.”

“We’re cutting back exploration this year and going into the next four years,” Sheffield said at the IPAA symposium. Historical exploration spending in the range of 30 to 40 percent of total capital expenditure is being cut to 10 percent, he said.

But Sheffield also said that Pioneer will be investing in Mississippi and Alaska exploration.

However, he said that total capex in 2007 will be 25 to 30 percent lower than the $1.4 billion in capex that Pioneer is spending in 2006. The 2006 capex is especially high because of funds available from divestitures in the Gulf of Mexico, he said.

Sheffield also commented that Pioneer currently has an especially large quantity of reserves in proportion to its production capacity.

“We’re left with a reserves-to-production ratio of 22 to 23, probably the longest in the industry,” he said.

Pioneer said in August that it does not plan to drill any exploration wells in Alaska in the winter of 2006-07. Instead, the company is focusing its Alaska resources on the development of its Oooguruk field in the shallow waters of the Beaufort Sea northwest of the Kuparuk River unit. The company is also investigating the Cosmopolitan oil discovery offshore the southwest coast of the Kenai Peninsula.

Sheffield confirmed that the company is forging ahead with the Oooguruk development, with first production slated for early 2008. There’s “a lot of additional running room … in adjacent opportunities to continue to tie in,” he added.

And Sheffield quoted some economic data that seem to confirm that an independent oil company can make a decent return from a medium-sized Beaufort Sea development. The projected internal rate of return for Oooguruk is 40 percent, with a discounted return on investment of 1.8, Sheffield said. According to Pioneer’s data the company’s fields in the Lower 48 have internal rates of return in the range 35 to 45 percent.

—Alan Bailey

Auditor wants Alberta royalty shake-up

But Albertans will be just as sick to hear Dunn’s statement that the province is losing out on oil and gas royalties, perhaps to the tune of C$180 million to C$200 million a year.

“Alberta is not getting its royalties which the regime says it should be collecting,” he told reporters.

“We’re missing money” because of an inability to know the “completeness and accuracy” of well production data, Dunn said.

He calculated that the rate of errors on the costing side amounts to 2.4 percent, with the government swallowing most of the mistakes.

Energy Minister Greg Melchin acknowledged Dunn’s concerns, but argued there is no foolproof accounting system.

However, he agreed to respond to the auditor general’s recommendations.

The industry is largely responsible for its own reporting, making it difficult for the government to calculate oil and gas volumes back to the well head.

Dunn called for an overhaul of those accounting methods, saying that until the government can accurately pinpoint the source and quantity of the production it can’t accurately assess the royalties owing.

A spokesman for the Canadian Association of Petroleum Producers told the Calgary Herald that the books are left open for years and are fully audited by the government.

Dunn also again raised concerns about Alberta’s shrinking royalty take, which averaged 19 percent over the last three years compared with the government’s target of 20-25 percent.

“This is not a one-year issue,” he said.

Melchin replied that the government should re-examine its targeted royalty levels, suggesting that might no longer be a “meaningful performance measure.”

Because oil sands projects pay royalties of only 1 percent until the capital costs are written off, he said that is distorting the overall average.

Opposition Liberal leader Kevin Taft accused the government of failing to protect the public interest, warning that Albertans will regret their oversight.

—Gary Park

Can you see the light?

The Energy Department, the Environmental Protection Agency, and even the Department of Housing and Urban Development have lined up behind the government’s annual PR effort to get people to switch to compact fluorescent light bulbs.

Here’s what the Oct. 4 press release has to say:

“The Department of Energy encourages all Americans to answer the president’s call to be more energy efficient,” Energy Secretary Samuel Bodman said. “Taking small and easy steps, such as replacing light bulbs with newer, more efficient compact fluorescent bulbs, can add up to real, substantive savings.”

As you might suspect, the rub is that it all depends on the old saw: “If everybody just …”

And what PR writer could resist the grandiose title for the campaign: “Change A Light, Change the World.”

Well, maybe just a little.

For compact fluorescents, the message from the EPA is that one bulb change by every American household would save enough electricity to light 2.5 million homes, and save $30 each for those who did the changing.

Then again, in a nation of nearly 300 million souls, you could bury a Hummer in pennies if everybody just sent in one red cent for the project. And you could cover that mound a few feet deep with the envelopes the pennies were mailed in.

Like modern diesels, the twirly fluorescents of today are a lot better than the clunky models of a few years ago, and they do deserve a look.

The old fluorescents put out a weak, green-tinged flicker, while many of the new ones provide a nice white light, especially with the shiny silver reflectors that are cropping up in hotels and other commercial applications.

Fluorescents do cost a lot less to operate. A 20-watt model puts out the same amount of light as a 75-watt standard bulb. And there’s a bonus in some climates — a lot less excess heat that has to be whisked away by air conditioning.

Still, there are a few problems with the curly-fry bulbs. They remain ten or twenty times more expensive, and many of them fall by the wayside long before the 7 years of lighting bliss promised on the label.

Another thing that the EPA might like to consider: The bulbs really aren’t supposed to go in the trash, since they contain toxic chemicals. And few communities have systems for easily recycling the bulbs.

Still, if you’re busy brewing your sawgrass into ethanol, be sure to use compact fluorescents so you can see the mash properly.

Just don’t ask how many energy secretaries it takes to change a light bulb.

—Allen Baker