Cash-flush Pioneer to invest $550-$600 million in 2004

Petroleum News

Pioneer Natural Resources, on the strength of new production and a strong commodity price environment, said it expects to generate upward of $1 billion in discretionary cash flow next year with $550-to $600 million earmarked for capital projects in the United States and abroad.

For the first time in the company’s history, a portion of the cash will to go toward a dividend program for shareholders, Pioneer said in a Dec. 16 conference call with analysts. In 2004, the company said it would distribute 20 cents per share to be paid twice during the year in 10 cent installments.

The remaining cash will be used to pay down Pioneer debt and possibly to repurchase stock and to acquire properties, the company said.

“We expect to generate significant cash flow and will strive to invest in only the highest-return projects,” said Scott Sheffield, Pioneer’s chief executive officer.

Under its $550-to $600 million capital program, Pioneer said it plans to drill more than 400 wells next year. About 65 percent of total capital will go to development and facilities and 35 percent to exploration. The lion’s share of cash will be invested in the United States, with 36 percent of the total going to the Gulf of Mexico, 32 percent to the onshore and 2 percent to Alaska, the company added.

However, with the Argentine economy improving and several new prospects with potential for sizeable reserves, Pioneer said it plans to significantly increase drilling with about 19 percent of total capital employed there. Four percent of capital will be invested in Gabon, with the remainder going to exploration and development projects in Canada, Tunisia, South Africa and other undisclosed international areas.

Fourth quarter production exceeded expectations

Next year Pioneer said that while it expects production to average between 178,000 and 200,000 barrels of oil equivalent per day, the bottom of the range includes only current projects in the budget. However, the possible investment of excess cash in additional development or acquisitions would take 2004 production to the top of the output projection, the company said.

Pioneer said the outlook for continued growth in 2005 is strong considering that first production from several fields in the Gulf of Mexico is not expected until well into 2004, including Devils Tower, Tomahawk and Raptor.

Pioneer said that during 2004 it expects to use a portion of its excess cash flow to reduce debt by a minimum $100 million and has established a long-range debt-to-book capitalization between 37 and 43 percent. The ratio is expected to be 47 to 48 percent at year-end 2003.

While it remains a high priority of the company to acquire additional interests in core areas, Pioneer said it also will consider share repurchases “as a means to create value per share,” adding that the board of directors has renewed and approved a $200 million common stock repurchase program.